How to buy a house or pay for rent? Mom and Dad might help

In their mid-20s, Caitlin and Chip Tassoni were working full-time jobs and gigging with a band on the side. But they were both steeped in student loan debt and throwing thousands of dollars at an apartment in Norristown. So in the summer of 2011, at the suggestion of Caitlin's stepfather, the couple did what some might consider the unthinkable: They moved back in with her parents.

Although the couple lived there free, they promised to set aside at least $1,000 a month to buy their first home. Caitlin's mother later offered the couple $10,000 to use either for their wedding or their down payment. For Caitlin, now 32, and Chip, 33, it was a no-brainer. They wanted a house.

By January 2013, the couple — with the help of her parents — put down $28,000 to buy a 1,750-square-foot, three-bedroom townhouse in Lansdale. Now married, they've got two kids and still live in that first home.

"We're finally financially stable. Finally," said Caitlin, who works as a recruiter and whose husband is a software tester. "We just recently stopped saving for the next big thing. It was just nonstop saving."

While millennials are on the cusp of becoming the most populous generation in America and currently make up the biggest cohort of home buyers, they also face significant barriers to entering the housing market. Home prices, rent costs, and student loan debt are rising at a faster rate than income while too few starter homes on the market means young people are forced to save for down payments longer than ever.

So what's an under-40 in the Philadelphia area to do? Those who can, studies show, turn to the bank of Mom and Dad.

About 17 percent of millennials — generally defined as people born between 1981 and 1996 — anticipate that their parents will help them with their first down payment on a home, according to  the apartment website Apartment List, which recently released a report based on about 13,000 responses to its annual renter survey. Of those who expect support, one-third believe that help will cover at least 30 percent of their down payment.

The National Association of Realtors says the figures could be even higher. In its annual report on generational trends released last month, NAR indicated that almost a quarter of buyers under age 38 used a gift from a friend or a relative to help with a down payment. Jessica Lautz, NAR's director of survey research and communications, said the strongest indicator that more young people are relying on their parents for financial help is that one in five millennials moves directly from their parents' home into home ownership, the highest rate in the last 30 years.

"Rents are very expensive in many areas of the country," she said, "so by skipping having to pay rent and being able to live at home, you're able to save for a down payment faster."

Those who choose to rent between living at home and buying their own are saddled with rising rent prices and, in many cases, end up having to turn to help from parents to cover that, too. The Apartment List survey showed about 8 percent of nonstudent millennials get some form of help from their parents to pay monthly rent and one-third of those renters have their rent paid in full by their parents.

Chris Salviati, a housing economist with Apartment List, said those figures likely underestimate the financial support millennials receive from parents or family members to cover costs, because many get help covering bills for cellphones, utilities, or other odds and ends. A New York Times analysis of survey data last year found almost half of 22-, 23- and 24-year-olds received financial assistance from their parents.

That was true for Lucas Hough, a 25-year-old Temple University graduate who within the last several months became financially independent from his parents after refinancing his student loans. But for the two years before that, he was buried in student loan debt and relied on his parents for several hundred dollars a month to cover rent.

For two years, Hough, a DJ whose main gig is working the bar at Time, had $1,600 worth of monthly student debt obligations but was making less than $2,000 a month even while working multiple jobs. He said the constant anxiety about his financial situation caused him to lose confidence — he felt as if he were working hard and putting in the hours "but not taking a step forward," sitting in his house eating ramen noodles instead of going out with friends because a payment was coming up.

Asking his parents for money to cover basic living expenses just added another layer of stress.

"They were always there for me, and they wouldn't leave me stranded anywhere," he said. "But I could feel the tension and frustration. I started feeling like I was becoming a burden on them."

Mike McCann, a Philadelphia-based real estate agent with Berkshire Hathaway HomeServices Fox & Roach, agreed it's student loan debt and rent costs that lead young buyers to turn to their parents for help covering their first down payments and the closing costs associated with buying a home.

Student debt has caused a good chunk of millennials to delay buying their first home, but Lautz said surveys show it's not because the generation doesn't desire to buy. According to another NAR report, eight in 10 student loan borrowers weren't able to save for a down payment because of their loans. The same report showed that more than half couldn't even qualify for a mortgage because of their debt-to-income ratio.

But as millennials have increasingly started buying homes with the housing market rebound over the last several years, McCann said he's seen an uptick in parental involvement.

Alyse Aldinger, Caitlin Tassoni's mother, said she wanted to be involved in the process and offered up housing and the $10,000 check because interest rates were low at the time and she wanted the young couple to take advantage.

"I think if I hadn't, they'd still be in an apartment," she said. Aldinger, 61, added that things were different when she was just starting out: She put down $1,100 for her first home.

McCann said the most common form of financial support he sees is in the form of a "gift letter" or a documented cash down payment gift submitted as part of a loan application. Stephanie Somers, a Re/Max Access agent who focuses her efforts in the city's Riverwards, said it's "not uncommon" for parents to chip in with down payments, even if it's just a small amount to get the buyer to meet a 20 percent down payment threshold.

This trend, of course, isn't universal. Only some families can provide that financial support, and experts say the discrepancy can contribute to income inequality by passing wealth through generations — the rich get richer and the poor get poorer — and reinforcing existing class structures.

Salviati said millennials who come from more privileged backgrounds can attain homeownership more easily because of assistance from their parents, "and that cycle perpetuates." Those young people whose parents can't help will inevitability wait longer to buy their first home, delaying the accumulation of personal wealth.

Tatjana Meschede, the acting director of the Institute on Assets and Social Policy at Brandeis University, said the length of homeownership is the largest driver of wealth gaps between income brackets and races. She said "a lot of that can be explained by parents or grandparents helping them with down payments."

Hough said he understands how lucky he is that he was able to turn to his family for financial support. Today, he's in a better place financially and emotionally and said he's achieving the ultimate goal: "growing up."

"There's this stigma against our generation that we just want to go to brunch and party all night, which I do, too," he said. "But not at the cost of being able to finance my life."