Co-Borrowing Is on the Rise for First-Time Homebuyers
As home prices remain high amid a competitive market, an increasing percentage of young adult first-time homebuyers are relying on support from older generations, including their parents, to buy a home together.
Saving for a down payment is one of the largest barriers to homeownership, and borrowers source these funds in a variety of ways, including personal savings accounts or gifts or loans from family and friends. A family member or friend can support a homebuyer by co-signing for a mortgage or listing themselves as a co-borrower. Combining income with a co-borrower allows borrowers to qualify for a higher loan amount.
To understand co-borrowing trends overtime, our researchers identified all Freddie Mac purchase loans with a co-borrower between 1994 and 2022, current through April. Then, we analyzed the age profiles of the borrowers and co-borrowers and identified young adult borrowers (defined as age 25-34) who listed an individual age 55 or older as a co-borrower on their application.
Through this analysis, we found that the share of young adult borrowers with a co-borrower age 55 or older has increased since 1994, with the share reaching an all-time high in 2015 before declining. Beginning in 2021, the share of young adult borrowers with a co-borrower spiked.
The below chart shows the percentages of young adult first-time homebuyers with a co-borrower age 55 or older since 1994.
In 1994, 1.3% of young adults who were first-time homebuyers listed co-borrowers age 55 or older, and the share has not fallen below 2.5% since 2012. In the past two years, the share has increased one percentage point. More expensive metro areas, such as Los Angeles, San Diego and Miami, tend to have a higher share of young adult first-time homebuyers who receive assistance from older co-borrowers.
The timing of this jump is notable. Since 2020, home prices have increased significantly. Perhaps to help them qualify for higher-cost homes or to make their applications more competitive, these young adult first-time homebuyers have been turning to co-borrowing to make buying a home possible.
For more insights from Freddie Mac’s research team, visit Research Insights, Notes & Briefs.