A significant portion of Bay Area home buyers with federally backed mortgages are getting help from family members to afford homes, according to federal data and real estate professionals.
Among borrowers in the Bay Area enrolled in the Federal Housing Administration’s loan program between January and August this year, about 28% received money from relatives to make their down payment, the Chronicle’s analysis of the program’s loan data shows. That’s higher than the national percentage of 25% for the same time period.
As housing prices climb across the U.S., research shows that a high percentage of home buyers nationally are using cash gifts or inheritances from relatives to make their down payments.
The especially expensive housing market in the Bay Area is pushing many first-time home buyers to rely on this type of help from family, real estate experts said. Some believe the phenomenon could widen the gap between prospective buyers who don’t have family members with resources and those who do.
“The fact that certain people can pay far more for housing means that (sellers) will be able to exclude families that can’t pay more,” said Carolina Reid, the faculty research adviser for UC Berkeley’s Terner Center for Housing Innovation.
For most years since 2015, more than 30% of borrowers who bought a Bay Area home through the FHA program reported receiving help from relatives. That share declined to 28% in the first half of 2023, which some experts say is related to rising interest rates.
The FHA loan program is intended to help home buyers with poor or no credit qualify for a mortgage by insuring the loan.
FHA borrowers whose relatives have money to contribute may have purchased homes before mortgage rates rose, according to Daryl Fairweather, chief economist at Redfin. The recent dip in the share of family-assisted down payments, she explained, might indicate that prospective buyers are backing off.
Help from relatives isn’t equally common across the Bay Area, the data indicates. Through August this year, the most recent month for which the FHA has data, family-assisted loans in the Bay Area were most common in Alameda County, with 35% of purchases.
Because the program has a mortgage limit of about $1.1 million for one-unit homes, it’s rarely used in more expensive markets like San Francisco. San Francisco had just 21 FHA loans, the second-least among the Bay Area’s nine counties after Marin County, with the median mortgage insured under the program close to the limit.
The data likely understates the overall share of home buyers in the region who are getting help from their family members, said Raymond Glover, senior loan officer with Supreme Lending. He estimates that 60%-80% of the younger home buyers he works with receive some sort of assistance from relatives.
“It’s almost on every deal,” Glover said. He said he recently worked on a deal in which the buyer brought $2 million from their parents to help pay for a $2.5 million house.
But not every family has the financial means to help. In the 1960s and 1970s, it was mostly white households who became homeowners and generated wealth that they’re now passing on to their children and grandchildren, Reid of the Terner Center said. Non-white families who faced housing discrimination may not have the resources to give the same level of aid.
“In more expensive places, the ability to support your kids is leading to new dimensions of inequality, particularly along racial lines,” Reid said.
That’s something Fairweather, the Redfin economist, can personally attest to. Homeowners wouldn’t sell to her Black father, she explained, and her parents were only able to buy a home when her white mother started touring homes alone.
Those historical patterns, she agrees, reinforce inequality even today. Nearly one in five Millennials told Redfin they don’t think they’ll ever own a home.
“The down payment has become a huge hurdle because of how high prices are,” Fairweather said. “Who has that kind of money sitting around?”
Reach Christian Leonard: Christian.Leonard@hearst.com