More First-Timers Tapping Family for Down Payment Assistance

A growing number of first-time homebuyers are turning to their relatives for assistance to make a down payment, according to a 2018 annual report from the Federal Housing Administration (FHA).

More than 26 percent of borrowers using FHA-backed loans got help from their families in the 12 months ending September 2018, up 4 percent from 2011. Currently, mortgage interest rates are rising, as are home prices, though they are growing more slowly; add on sluggish wage growth and student loan debt, first-time buyers are less able to save up for and afford a down payment, closing costs, and other related housing costs.

Homebuyers getting assistance are typically viewed by lenders as riskier borrowers, as they have less collateral tied to the purchase and their property, and thus have less to lose. Yet, industry executives tell Realtor.com that family assistance brings with it less risk than help from a property seller. Sanjiv Das, CEO of the fifth-largest mortgage lender in the U.S. by loan volume, Caliber Home Loans Inc., explains, “I think that family assistance has a higher moral bearing on people when things turn tough in the market,” meaning that they acutely feel a responsibility to protect their relative's equity.

The FHA, an arm of the Department of Housing and Urban Development, insures lenders against losses on the sometimes riskier loans they make. Borrowers taking out FHA loans are predominantly buying homes for the first time and often have weaker credit profiles that make it more difficult for them to get a conventional loan. It makes sense these borrowers might need to ask for financial help, but the FHA is keeping an eye on whether the share doing so keeps rising.

While conventional mortgages can require buyers to put down as much as 20 percent of the purchase price upfront, FHA buyers can pay as little as 3.5 percent. Such loans make up about a 10th of all U.S. home-loan originations, a share that has declined in recent years.

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