More Buyers Getting Down Payment Gifts from the Bank of Mom and Dad
The Bottom Line
Real estate professionals are seeing many younger buyers receive large financial gifts from parents to help with them afford a house. But down payment assistance from other sources can help buyers without this luxury.
Wondering how the 25-year-old down the street could possibly afford their new home? It could be because they had significant help.
“I can’t tell you how many of my clients, Gen Z and millennial, receive help from their parents,” says Scott Betley, a loan officer and mortgage influencer with 1.1 million followers across platforms. “Not only gifts, but co-signing on the loan.”
In a recent video posted to TikTok, Betley notes that of the Gen Z and Millennial clients he helped over the last year, close to 35% had parent help. Several received between $100,000 and $300,000 – or more – to put down on a new house. “A ton” had non-occupying co-signers, meaning Mom and Dad signed the loan, too.
“Affordability, interest rates, and payments have gone up so much over the last few years,” Betley says. It makes sense that buyers have to get creative if they want to grab that first rung of the property ladder.
However, not everyone has family with deep pockets and a generous attitude. Below, we explore what experts call a rising trend in homebuying, plus alternatives for buyers doing it all on their own.
As Costs Rise, so Do the Gifts
Sources: U.S. Census Bureau; U.S. Department of Housing and Urban Development via FRED®
With the average home price sitting north of $400,000 and interest rates not expected to drop in 2025, buying a home is a huge investment.
“Purchasing a home for the first time has likely always felt like a bit of a stretch, but high home prices and elevated mortgage rates mean affordability weighs heavier on today's buyers,” said Hannah Jones, senior economic research analyst at Realtor.com, in an email.
“Widespread unaffordability weighs particularly heavy on first-time buyers, who tend to be younger and lower-earning than repeat buyers,” she said.
According to 2024 data from the NAR Profile of Home Buyers and Sellers, fully one quarter of first-time home buyers funded their down payment with a gift from a relative or friend. Meanwhile, Redfin survey data released last year found that young homebuyers were twice as likely to fund their down payment with a gift compared to five years previously.
“It’s pretty common,” says Mark Anderson, a senior loan officer at Guild Mortgage who also runs the Best Mortgage Answers channel on YouTube. He estimates that at least 20% of his first-time buyer clients used some form of a gift last year, whether from family, friends, or a significant other.
Why More Buyers Are Using Family Gifts to Buy a Home
When asked about the topic, Betley, whose video on family gifts sparked nearly 700,000 views, sighed. “It just speaks to what's happened over the last four years and the affordability crisis,” he said in a phone interview.
“Unfortunately, the average middle-class family has been priced out of the housing market, and it's just a wild time,” he continued.
“There hasn't been many times in the history of the United States where there's been this much of a gap between what the average household was making and what it actually took to get started.”
In fact, the U.S. market has been seeing a number of all-time highs lately. Data from the NAR Profile of Home Buyers and Sellers notes that a record 26% of home buyers paid cash for their home last year, while the average age of first-time buyers climbed all the way up to 38 (it had been 33 just four years previously). Meanwhile, the average salary is about $66,000 – enough to afford roughly half of a median-priced home in the U.S.
Even those with much higher salaries aren't guaranteed to qualify. In a recent study, Mortgage Research Center found that a $100,000 salary no longer buys the typical home.
Where Do Parents Get the Money?
So if some buyers are enjoying a little extra help on their journey to homeownership, the next question has to be: where is the money coming from?
Equity
With Baby Boomers reaching peak retirement and inheritance age, they’re more likely to have significant home equity, said Realtor.com’s Jones. That can be used to help younger family members make their first home purchase, even if those buyers don’t quite yet have the means. Reverse mortgages and home equity loans are two ways of tapping that home appreciation.
Investments
“Most commonly, they've got an Edward Jones account, or a Fidelity account, some sort of investment or asset that they're withdrawing from,” Anderson said. Maybe that includes retirement accounts, but it can also be a simple brokerage account, where selling some stock frees up enough cash to help.
Savings
While 69% of first-time buyers use their own savings for a down payment, those receiving gifts might be using their parents’ savings. And it’s not always a huge amount – sometimes, it’s just enough to cover the minimum down payment required.
“The people who are donating the money, at least in my anecdotal experience, are also sensitive to not just chunking over a million dollars. It's typically geared around whatever the minimum is that's needed to secure the deal for them,” Anderson says. “My most common scenario is, if it's an FHA loan, 3.5% down, that's what's going to be coming from mom and dad.”
Mortgage Rules for Using Family Gifts
Before you give – or receive – a down payment gift, make sure you know the rules. Requirements vary depending on the type of loan, but here are the highlights:
Provide a gift letter. This shows the funds are a gift, not a loan. It also explains who and where the money comes from.
Show documentation. The lender may need to see bank statements from the donor showing the transfer.
Close family only. There are different rules for who you can receive funds from depending on the type of loan. Most loan types allow gifts from family members by blood or marriage. FHA may even allow a gift from a close family-like friend with the right documentation.
Using your own money. Though there may not be a limit on how big the gift can be, some loans or lenders will require borrowers to put at least a little of their own money into the transaction.
Ask your lender which specifics apply to your situation
5 Tips for Buyers Without Parental Support
Of course, not everyone has family with the means (or the disposition) to contribute toward a home purchase. If no one is lining up to hand you a gift, consider other ways to make it easier on yourself.
1. FHA and Other Low Down Payment Options
The type of loan you pick can help. FHA loans are designed to help people with lower credit scores and smaller down payments. You might be able to put down as little as 10% if your credit score is above 500, and just 3.5% if your credit score is above 580.
Eligible veterans and service members using a VA loan may be able to finance up to 100% of their home purchase price – no down payment required. The same goes for USDA loans: if you and the property qualify, you may be able to buy with no money down.
There are also conventional loan programs that allow small down payments of just 3%.
“Say you're looking at a $300,000 house, and you're approved for a conventional loan. When you've saved $9,000, you're ready to roll,” Anderson says.
2. First-time Homebuyer Assistance
Your city, county, or state may offer assistance you never even considered, whether it’s a forgivable loan for your down payment, a grant toward your closing costs, or super-low interest rates. Depending on where you live, where you want to buy, and how much you make, state and local assistance programs can make buying a home much more affordable.
However, the tradeoff is that these programs typically have very strict requirements. You may need to make less than 80% of the area median income to qualify, for example, or promise to live in the home for 10 years. Start with your state’s housing finance authority to find programs that can help and what you need to be eligible.
Related: Home loans and programs for first-time homebuyers.
3. Alternative Down Payment Programs
Some lenders offer low-down-payment incentives to entice new mortgage borrowers.
Katelyn and Danny Hughes, two homeowners in their mid-twenties, bought their first home together in 2024 in a Pittsburgh suburb. They took advantage of a program from a major nationwide lender that let them buy with just 3% down: 1% from the couple and a 2% grant from the lender.
Other companies may offer lender credits, grants, and programs that can lower what you need to close on a new mortgage.
4. Tap Your 401(k)
If you make too much to qualify for state and local assistance but not enough to afford a down payment, you might need to look elsewhere for money. If you’re vested in your company’s 401(k), borrowing against it could provide the funds you need to get into a property. A 401(k) loan – not a withdrawal – lets you borrow up to 50% to buy a principal residence without a penalty. However, you’ll have to pay taxes and pay yourself back with interest, so make sure you talk to a financial advisor, plan administrator, or tax planner before going this route.
5. Budget Like Crazy
The true number you need to save up could be lower than you think. What if you saved up $12,000 instead of $80,000? That’s the difference between 3% down and 20% down on a $400,000 home.
“The first thing is we need to discuss their budget,” Betley says of working with buyers. “What they're comfortable with, and what that looks like, and what that translates to in terms of purchase price. That's one of the very first questions that I always go through, just because what you qualify for and what you're comfortable with are two totally different things.”
Only you can decide what expenses are worth sacrificing and what makes life worth living, but a detailed budget and a goal in mind may help you get there faster.
The Bottom Line
Leaning on family members who are in a position to help is a rising trend in today’s real estate market, but not everyone can count on that kind of support. As neither home prices nor mortgage rates are expected to fall dramatically in the near future, it makes sense for buyers to cast a wide net when looking for help on a home purchase.
Family gifts are one source, but if you’re ready to buy, don’t forget to explore what other programs, grants, and assistance may be available. It could make a big difference in what you can afford, and when.
