Purchasing a home has become so expensive that potential buyers of all ages,
Among
This compared with 14% of millennial respondents, 10% of Gen Xers and 3% of baby boomers. The survey covered 1,519 people who either bought a home or attempted to buy a home in the past four years.
They were asked "where did the money for your down payment come from?" Respondents could choose more than one response. Across all age groups, 11% said they worked with friends.
Gen Z is the
A collaborative generation playing a key role in the market
Gen Z grew up very comfortable with
According to a Redfin study, 39.7% of mortgages issued in 2023 went to homebuyers under 35, and 26.5% went to purchasers between 35 and 44. Then 16.1% went to those between 45 and 54, 10.8 for those 55 to 64 year olds, while just 5.4% went to the oldest demographic, the 65 to 74 year olds (5.4%).
Those numbers also show that the Gen Z group is very eager and motivated to participate in homeownership. The statistics around the rise confirms anecdotal reports that they also have been
"When you grow up in an environment, where you're used to those kinds of tools, you're used to those kinds of methods, it's a logical extension," said Howard.
Younger generations' collaborative approach to housing is an opportunity to expand the buyer base for properties, according to Nestment, a startup that helps Gen Zers and millennials hack homeownership.
The site gives potential users "a roadmap; it says 'here are your next steps,'" said Niles Lichtenstein, CEO and co-founder. When users pick a particular room on the site, they'll see a set of next steps to go through. The process provides education that helps them make financial projections and informed choices about the right lenders to work with, he said.
More than one-third of current non-homeowners are willing to split a purchase with someone other than their partner in order to afford a property, Lichtenstein noted citing a Credit Karma-Intuit survey. That jumps to 59% when looking at Gen Z respondents.
"We see this becoming a bigger and bigger part of the purchase pathway," Lichtenstein noted.
Rather than continuing to rent, people are increasingly looking at whether they can own a house and build wealth, he said.
"I think everyone eventually wants to be in a single family home with a loved one and family, that's the ultimate goal," said Lichtenstein. "But it's less and less possible for so many people."
Nestment helps multiple people look at property listings and do financial projections together, creating a pathway where they can feel comfortable to go ahead, Lichtenstein stated.
The demand is growing, he said. In an early phase of the project, Nestment was looking to have 100 groups come on board and in a week it had over 1,000 qualified groups that were looking to purchase a property in the next 12 months, Lichtenstein said.
It was more than the team could handle; it narrowed down to 600 participants and from that initial effort it expects between 70 and 80 transactions to result, he said.
One broker's experience handling this type of business
Tiana Uribe, a mortgage broker in
"It's really difficult for millennials and Gen Z buyers to even enter the market unless they have ample help from their parents regarding a down payment, or they're pairing up and buying together," Uribe said. "It makes a lot of sense when you don't have those other resources available to you."
A recent transaction she handled involved two people who lived in the same rental property, albeit in separate units. The landlord was looking to sell the property. The renters approached Uribe to see if she would speak with the landlord because they were willing to buy the property together.
California's regulatory environment, where mortgage brokers are licensed as real estate brokers, allowed Uribe being able to represent the buyers in both capacities.
Another reason the two renters, both single females, wanted to buy was because average rental prices in the area are between $2,500 and $3,000 a month, and that could be for a studio apartment, Uribe pointed out.
Because the house did need some repair, Uribe was able to arrange
Furthermore, the pair were able to split the 3.5% down payment, with one purchaser, a teacher, able to pull the funds from her retirement account. The other purchaser had enough in savings.
Since they bought the property a year ago, they were next able to obtain a streamlined refinance and reduce their monthly payment while at the time sharing in the additional appreciation as the value increased, Uribe said.
In a friends-joining-forces situation, one might think that the underwriting process could be difficult. But Uribe said it wasn't because both women had been living in the property for five years and were able to show their rental payments.
Because it was a rehabilitation loan, the buyers had to be on board with making sure the lender issued the draws for the contractors and subcontractors.
From a legal perspective though, many of these participants are likely not to have thought through all of the ramifications and the potential downsides, Howard said. You need to have a strong relationship with the person you are entering into this arrangement with, just as one would if they were buying a house with a spouse or domestic partner.
In Uribe's case, "My recommendation to them was to seek out an estate attorney so that they could manage the division of the property if something were to happen to either one of them."
After speaking with that lawyer, they both decided to set up individual trusts.
Uribe called the arrangement her clients entered into a "great model" she can show to other potential homebuyers who ask "How can I buy a home when the median property value in our high cost area is $950,000?"
The loan worked not just because of the agreement between the parties, but also because the area met the high-cost criteria to qualify for FHA financing, where people can qualify up to four borrowers (such as two couples) on the properties, Uribe said.
Her niche client demographic is single women. She creates a lot of content about house sharing on her Instagram account.
Those new homeowners who took the leap are now gaining in equity and living in a great location "because they didn't wait.
"They believed in themselves and they trusted enough to do it," said Uribe. "It's a real testament to having faith that it's going to work out."
The risks
These arrangements can be great when they come together. However, if they fall apart later, they can create a "legal minefield" for participants, said Marty Green, principal at mortgage law firm Polunsky Beitel Green.
"Everyone goes into these arrangements, thinking everything's going to work out perfectly, as many times they do, but many times they don't," Green said. "And where they don't that's where things get a little dicey."
For example, while these can be single people who are not romantically involved, eventually one might enter into a relationship, and that can complicate things.
So dissolving the partnership would be an area that would need to be addressed in a legal agreement.
Mortgage servicers have found themselves involved in instances where a married couple divorced and it impacted the ownership of the house. Similar issues could arise for the lender/servicer when it comes to property ownership involving unrelated parties, Green said.
The big difference is that legal rules around divorce cases also cover the equitable division of assets such as homes. Those rules don't exist for unmarried co-owners, regardless of whether or not they are in a romantic relationship, unless they have a contractual arrangement.
Green has a case where a mother and son teamed up to purchase a house because both incomes were needed to qualify for the mortgage. But the son is now in a relationship and his mother and girlfriend do not get along.
The son put in less than half of the down payment and closing costs, yet wants to be bought out as if it were an equal partnership in order to share in the appreciation. A lawsuit arose because the parties couldn't amicably resolve the situation.
"Even family members, when they buy a home together like that, can be a bit crossways at the end of the day," Green said. "Not having paid attention to those details at the outset really became a point of contention for both the mother and the son."
When it comes to underwriting, originators "typically rely on both people's income and assets to approve the loan at the outset," Green said. "For them to be willing to release one of you from liability means that something [in a financial situation] needs to have improved to make the underwriting still work."
But as far as the actual underwriting process, "It's really just do these two borrowers qualify, if they qualify, and that's probably the end of the inquiry from the lender side," Green said.
Consumers are doing more creative things to get into a home like putting money together for a down payment, being co-borrowers and being on the note together, said Matt Dunbar, senior vice president of the Southeast region at
"As the lender we look at is repayment ability and default, we looked at the collateral," along with what is the acceptable use for the property, he said.
"So when we evaluate the property, those are really the bigger concerns," Dunbar added. "As long as we can document it, it's not really a big issue."
Churchill Mortgage works on connecting consumers with resources such as down payment assistance and first-time home buyer programs.
Dunbar pointed out that the median income for a Gen Zer is about $37,300 according to GoBankingRates. Meanwhile, median home prices are still rising, to an all-time high of $396,000, with a median monthly mortgage payment of $2,781, Redfin said in a June 20 press release.
From the underwriting perspective, pooling with friends is very similar to a married couple buying a home, where both incomes are considered and both people are on the note.
"We evaluate their credit history, their payments, the source of their down payment, deposits and reserves, all the same way," said Dunbar.
As with married borrowers, the note creates a legal obligation for both parties to be responsible for paying the loan. The lender/servicer has the same remedies in distressed situations, Dunbar said.
Some final words from experts
Keep in mind this arrangement tends to be less popular among older generations because they are typically more established in their career path and have more financial resources to tap in a competitive housing market. So they're not necessarily looking for a "creative alternative" to achieve homeownership, Howard said.
It's also worth noting that not only are members of Gen Z more willing to collaborate through co-buying or
That said, it's generally true that the longer people have been on the sidelines primarily because of the lack of inventory and rising interest rates, the more likely they may be to come to the realization that they have to engage in creative strategies to meet the housing market where it is today.
Given that many have been
"If they want to get [a house] now, they're going to have to figure out a way," Howard said.
