What 54 Percent of City Homeowners Don’t Want You to Know
Have you ever scrolled through social media and secretly wondered “How the heck are my peers affording that lifestyle?”
Yeah, we don’t know how they are funding those Bora Bora vacations, either. But a recent report from Zillow gave us some pretty good intel on how people are actually affording down payments for homes in big cities. We’ll give you a hint: It has nothing to do with skipping avocado toast or cutting Netflix from the budget.
Rather, 54 percent of urban buyers are using financial gifts from family members or friends to help cover the down payment. Ah-ha, right?
Gift money differs when it comes to city and suburban buyers
Now, we don’t have a breakdown of how much gift money people are using for the down payments. Are those surveyed counting the $5 bills that grandma and grandpa send for birthdays? Or are we talking thousands of dollars gifted by a well-to-do family member? Our voyeuristic minds, unfortunately, will be left to wander on this point. And we’re not saying that gifted money is bad, either. There’s no shame in getting help from friends and family!
Regardless, this data does help solve the mystery of how some people are able to buy in urban areas, where home prices easily flirt with a million bucks. Based on current rates of monthly savings, millennials in most of the large metro areas throughout the United States would need at least a decade (and in some cases two) to save up for a 20 percent down payment on a condo, according to numbers crunched by Apartment List.
Interestingly, the Zillow study shows a big difference in gift contributions when it comes down to buying in the cities or the suburbs. Only 19.5 percent of suburban buyers and 16.6 percent of rural buyers are using gift money for their down payments, according to Zillow’s figures.
It’s likely more buyers in big cities are using gift money because urban areas tend to attract millennials who often don’t have much socked away in savings, yet, explains Snezhana Conway, a Realtor with Keller Williams in the greater Washington D.C. area. Meanwhile, suburban buyers go to suburbia to raise families and they tend to be more financially established (i.e. older!) and have more money in savings. Of course, prices in cities are higher, too, so there is more of a need to pool funds (if possible).
Who can give you gift money?
Now, here’s where things get a little tricky. For conventional conforming loans, the gift can be provided by a relative or a fiancé, fiancée, or domestic partner, explains Robert E. Tait, a senior loan officer with Allied Mortgage Group. But for FHA loans, the guidelines are loosened some. Gifts can come from a family member, the borrower’s employer (that’s a great boss!), labor union, close friend, or charitable organization. It also can come from a government agency or public entity that has a program providing homeownership assistance to low- or moderate-income families or first-time homebuyers, Tait explains.
Also, pro tip: If you’re planning to use a gift as part of your down payment, tell your lender early in the process before your start the home shopping process, says Jennifer Beeston, vice president of mortgage lending with Guaranteed Rate Mortgage. Some loans require the buyer to contribute a percentage of their own money in addition to the gift for the down payment, she explains.
So, are you ready to ask a family member or your BFF if they’re down to help with your down payment? To help sway them, tell them you’ll waive that unwritten familial contingency that requires them to help you move.