The Path to Homeownership for Young Adults

Young homeowners face many barriers of entry in the housing market, particularly when it comes to the down payment and closing costs related to purchasing a home, but these young buyers are using an alternate source of funding to get a mortgage loan.

When young buyers run into monetary problems related to purchasing a home they often turn to two people: mom and dad. Parental financial assistance allow young adults to come up with the up-front costs of buying a home.

According to data from the U.S. Census Bureau, since the housing bust, homeownership among young adults has fallen sharply. The homeownership rate of households headed by 25- to 34-year-olds was 36.9 percent in 2014, almost 10 percentage points lower than in 2006, when the rate was highest.

Fannie Mae's National Housing Survey showed that half of young renters cite affording the down payment or closing costs as the biggest obstacle to obtaining a home purchase loan.

In a report titled, "The Role of Parental Financial Assistance in the Transition to Homeownership by Young Adults," Professors Dowell Myers, Gary Painter, and Julie Zissimopoulos of the University of Southern California analyze the impact that parental financial assistance can have on homeownership among young buyers.

"Given the substantial barrier posed by the upfront costs of homeownership, it is not surprising that young adults sometimes need financial assistance when purchasing a home," the report said. "Most often, assistance takes the form of a financial transfer (loan or gift) from parents to their children, but in practice it could also include transfers from grandparents or other family and friends."

According to the research, one in 17 adults between the ages of 24 and 49 that do not own homes receive a substantial amount of financial help from their parents and will be more 23 percent more likely to transition to homeownership in the next two years.

Young homeowners sat down with MReport to share their experiences buying a home with the help of their parents.

Takiesha Wonsley, a 26-year-old homeowner in Mississippi, said that she and her husband got married right out college and had not established the funds needed to buy a home.

"We had not yet established our careers or anything, but we really wanted to buy a home," Wonsley stated. "We reached out to our parents for a little help with the down payment. Now, we are in our home and preparing to start a family."

Twenty-seven-year-old Lenna Myles was able to purchase her first home in Houston, Texas with a $5,000 gift from her mother.

"[My mother] asked me what I wanted for my graduation gift and at that point in life I think all graduates needed two things: a job and money," she explained. "I had a job lined up so I chose the money. I thought about getting a new car, furniture, and a ton of other things. After some deep thought, I realized that I wanted a house and I had the money to get it thanks to my mother

Aspiring homebuyer, Frederick Young, a 27-year-old Florida-native, had a different experience when he sought financial assistance from his parents.

"They told me no. You know how parents are. They want you to be a man and do it yourself, which I completely understood," Young said. "The thing is, I only needed $500 more to make the down payment. I had everything else in line to get the mortgage loan but I was short on the down payment. I asked my mom and dad for a little help and they refused, even when I offered to pay them back."

He continued, "I am still working on buying a home. I did not give up when they told me no. Life events have set me back on my finances a little, but I am getting closer to my goal and becoming a homeowner."