Gifts, Loans and other family help
Home Buying with family help
Let me start by saying, I know it can be difficult asking people for financial assistance. Trust me, I am the first one to try to do it all myself. The thing is though, home buying has become a lot harder than it was in the past. Even in just the last two years buying a home on the east coast, especially in Richmond, VA, has become a true game of endurance and cash. If you’re starting to make your plan to buy a home this might be the right time to bring up your goal of owning a home and what that might look like with the help of your family. I know, it may feel awkward to ask your family to help you out financially. But, did you know…
22% of first-time home buyers used a gift or loan from family/friends to help with their downpayment in 2022. (sorry, no 2023 data yet.)
For first-time buyers, 26% said saving for their downpayment was the most difficult step in the home buying process.
The typical downpayment for first-time buyers was 6%.
Over the past few years we've seen parents, grandparents, aunts and uncles chip in more and more to help first-time buyers make owning a home a reality. With the consistently low inventory and increasing sales prices, it can be hard for millennials to get that downpayment into savings, especially with our added debts of student loans and the extra expenses of cellphone bills and streaming services. Jokes aside, I know my Netflix subscription isn’t keeping me from making a downpayment, but the fact is, past generations didn't typically have some of the expenses our generation does, so saving for those downpayments was more achievable. If you've been trying to tough it out (and I applaud you!) but you can't quite seem to get that downpayment or closing costs saved, it may be time to reach out and ask for some help. I know this can be a tough conversation to start so here are three conversation starters to help bring up your desire to have some help with the downpayment, closing costs, or other financial needs associated with buying a home:
3 Conversation Starters to Help Talk about Financial Assistance
“Hey, grandma (or other family member), how old were you when you bought your first home?”
“I was just reading this article (you cite this one or even this blog post) about the average age of first-time buyers right now. Did you know the average is 36?”
“Did you know the amount of down payment someone is able to put down nearly triples if you already own a home?”
EXPECTATION SETTING around gifted or borrowed money
This can be a tough conversation to start but once you get going it might flow pretty naturally. Remember, you’re not necessarily looking for entire downpayments or for them to cover all of your closing costs (sweet if they offer though!), but just with some assistance so that you can invest in your own future. Here are three additional things to have prepared when talking to family members about gifts or loans for your home purchase:
Be prepared to discuss the possibility of a family loan with interest attached.
Know what current rates are in the market so you know if you're striking a fair deal with your family. Ideally, your family will be giving you a lower rate than the national average at this time but if they just want to be competitive with the market make sure you know what you’re asking for.
Know your numbers.
This means knowing how much money you plan to borrow for the purchase and therefore how much money you need to put down and how much money you’d need in closing costs. Your parents/family are bound to ask how much you need, make sure you know.
Discuss the expectations of the financial exchange.
Is it a gift or a loan? What strings are attached? In other words, make sure you understand if they expect to get a key to the house and come by whenever they want, if they think you’ll watch their dog whenever they leave town as “repayment,” or if they have a repayment timeline in mind if they’re considering this a loan.
Having your family help with your downpayment or closing costs isn’t always possible. Maybe you’re estranged from your family. Maybe mom really wants to help but can’t financially swing it herself. If your family can’t help you, that’s okay! Let’s look at grants and other loan products to see how we can make a home buying plan that works for you. I’m here when you’re ready to start your homeownership planning, just schedule your Home Buyer Coffee Call!
Your Friend,
Jess