The Kids Aren't Alright: How the 'Bank of Mom and Dad' Is Reshaping the Housing Market

How Big Is the Trend?

The National Association of Realtors has reported that the share of first-time buyers receiving financial assistance from family has been rising steadily. In high-cost markets like Phoenix, where the median home price requires a substantial down payment even at conventional minimums, parental assistance has become a meaningful factor in whether a first-time buyer can close.

The forms of assistance vary: outright cash gifts for the down payment, co-signing on the mortgage to strengthen the application, purchasing the property outright and then selling or gifting it to the child, or providing a loan (which has different underwriting treatment than a gift). Each structure has different implications for mortgage underwriting.

Gift Fund Rules in Mortgage Underwriting

For conventional loans, gift funds from an acceptable donor (immediate family member, domestic partner, fiancé) can be used for the down payment and closing costs. The gift must be documented with a signed gift letter that includes the donor's name and relationship to the borrower, the amount of the gift, the property address, and a statement that the funds are a gift and not a loan with no expectation of repayment.

The source of the gift funds must also be documented. The lender will typically require the donor's bank statement showing the funds leaving the account and the borrower's bank statement showing the funds arriving. This "paper trail" requirement catches situations where funds are borrowed rather than gifted — which would affect the borrower's debt-to-income ratio.

Minimum Borrower Contribution Requirements

Some loan programs require the borrower to contribute a minimum amount from their own funds — gifts cannot cover 100% of the required funds in all cases. For conventional loans with less than 20% down, the minimum borrower contribution varies based on the loan-to-value ratio and the number of units. FHA allows 100% gift funds for the down payment as long as the gift is properly documented. VA and USDA do not require a down payment, so the gift fund question is less relevant for those programs.

Confirm the minimum borrower contribution requirement for your specific loan program before you plan the gift structure. Discovering this requirement after the gift has been made can complicate the underwriting process.

When a "Gift" Is Actually a Loan

If the funds are expected to be repaid — even informally, even without a written agreement — they are a loan, not a gift. Loans from family members must be disclosed to the lender and are counted in the debt-to-income ratio calculation. Undisclosed loans that are later discovered in underwriting can result in a denial or, in severe cases, allegations of mortgage fraud.

If the family's intent is to provide a loan rather than a gift, the right approach is to disclose it properly and structure it as a documented subordinate lien. Some loan programs allow this; others do not. A planning review can help you understand the options for your specific situation.