Len Augustyniak remembers receiving $2,000 from his father when he bought his first home, a two-flat in the city. The year was 1958, and the purchase price was $12,500.
”My dad encouraged me to buy real estate,” says Augustyniak, vice president and chief underwriter for Talman Home Mortgage Corp.
Augustyniak is proof that Baby Boomers didn`t invent the idea of having the folks help out with that first home purchase. ”Ever since mortgages have been around, people have been borrowing money from their parents,” says Tom Gobby, a vice president at Talman Inc. Gobby himself borrowed money from his father-in-law for the house he bought in 1970.
But while it has been the subject of only scant study, there is something different about the loans and gifts that parents are making to children born during the Baby Boom. It isn`t so much the money itself, although amounts are probably larger than in Len Augustyniak`s day.
Nor is the real distinction in the way the money is lent, although in recent years the outright gift has supplanted parental co-signing of the mortgage, says Blanche Kishner, who has been a top sales agent for most of her 16 years at Kahn Realty Inc. in Glencoe.
Rather, it is hard economic realities, the Baby Boomers` tendency to delay their arrival at the major milestones of adulthood, and the changes the first two factors have wreaked on the parent-adult child relationship that have had a major impact on a time-honored transaction.
For the most part, Realtors and lenders sympathize with Baby Boomers`
complaints that it was easier to buy homes in the Eisenhower years, when easy- to-obtain veterans` loans and low prices helped their parents build the nation`s suburbia.
And, unlike previous generations, Baby Boomers often experience significant indebtedness at an early age. ”I`m kind of amazed at the number of (my children`s) friends who have piled up $15,000, $20,000 or $30,000 in college debt,” says James Shackford, public affairs vice president for the National Association of Home Builders in Washington, D.C.
Spiraling rents and stagnating wages, both of which affect the ability to save for a home, have also taken their toll.
”It`s almost to the point where you can`t buy a house if you can`t get money from your parents,” says Marty Hill, a loan officer with North Shore Mortgage Co. in Winnetka. He has seen children as old as 40 get help from their parents. ”It`s not just kids out of college.”
”A lot of my friends are borrowing from their parents,” says Leslie, 39, who works in communications. ”By the time they started earning enough money to qualify for a mortgage, they had lost time accumulating a nest egg.” She owns a two-flat in Chicago`s Lincoln Square community that she was able to buy in 1988 through a shared equity arrangement with her mother.
(Some of the homeowners interviewed for this article asked that their last names not be used, since their stories involved financial information not only about themselves, but their parents as well.)
Free spending
But Talman`s Gobby isn`t entirely convinced that Baby Boomers need help from Mom and Dad because they are innocent victims of bad times. ”It`s a matter of lifestyle,” he says.
The generation`s free and easy way with credit cards, along with its inability to save, unrealistic expectations and ”got to have it now”
mentality leave Boomers high and dry when it comes time to make what is probably most important purchase in their lives, Gobby adds.
When ”thirtysomething,” the now-canceled television show often regarded as a touchstone for this generation, weighed in on the subject, it echoed many of Gobby`s misgivings: that depending on parents for help with the down payment is yet another expression of Boomers` selfishness, their need to be coddled at a rather ripe age and even their inability to succeed as their parents did.
In one episode, Hope and Michael decide to get away for the first time since Janey`s birth. Having agreed to watch the baby and the house, Ellyn and her boyfriend are seized with a desire to rifle through the absent couple`s belongings. Ellyn pulls out one drawer and discovers a piece of paper.
”Her parents paid for the down (payment) on their house,” she says, shocked. ”I never knew.” A few moments later she grumbles, ”I hate people with generous parents.”
”While our culture has always placed a premium on leaving home and being financially and emotionally independent as a criterion for adulthood, the economic realities are shifting the actual relationship between young adults and their parents,” says Froma Walsh. A specialist in family issues, she is co-director of the Chicago Center for Family Health and a professor at the University of Chicago School of Social Service Administration.
At the same time, Walsh says, this generation has enjoyed ”an extended young adulthood” that is often free from the responsibilities of marriage, parenthood and perhaps even a steady job. This may only intensify the feelings surrounding any act (like buying a home) that has to do with establishing personal independence.
”A lot of people feel that their parents interfere in their lives enough, and if there`s a financial connection, that interference will be intensified,” says Leslie, the Lincoln Square homeowner. ”I don`t think that`s an unfounded fear.”
Bribing the kids?
Meanwhile, parents may grow increasingly anxious, wondering when their children are going to settle down. Walsh says that while parents may indeed help out because they feel real estate is a good investment, or because they`re sympathetic that ”they had it better in terms of economic times,”
helping a child may also be used as a kind of bribe.
”It isn`t just giving them money,” she explains. ”The hope is that buying property will lead them to have a family, have grandchildren and assume a stable, responsible life course.”
For parents, the need for a loan or gift may raise other issues as well.
”On the one hand, they want to help their kids,” says Walsh. ”On the other hand, they may think, `I`ve been helping for so many years-when is it going to be time for me?` ” They may suspect that the road they are traveling is not a two-way street, filial responsibility having never been one of America`s strong suits.
Given the high rate of divorce among Baby Boomers, parents may even worry that the house they help their child buy today will end up being fought over in a court settlement a few years from now.
Then there is the question of how much to give. Augustyniak, who helped all three of his sons buy their homes, jokes that the amount ”depends on how much the parent loves the child-especially if the parent is taking something away from their own retirement.”
According to Walsh, there is a kernel of truth in that jest.
”Money is the symbolic currency of the conflicts of family relationships,” she says, especially in affluent families who may be in the best position to help children with a home purchase.
But if parents and children feel uneasy about the arrangement, those who make the mortgages don`t have any problem with it, especially if the parents make a gift of the entire down payment.
”On the North Shore, that`s not unusual,” says Marty Hill.
”If any parent is that interested and that loving, we don`t have to worry about it,” says Len Augustyniak of Talman. ”It means that the parent is looking out for their investment, and so (the child) better make that monthly payment. It probably gives them the feeling of, `Gee, I don`t want to disappoint them.` ”
Smooth going
But advancing money to a child isn`t always fraught with recriminations and shouts of ”Oh, grow up.” Walsh says that parents and children who have
”negotiated a good adult-to-adult relationship” are generally able to give and receive help without a lot of tensions. In fact, she says, the ability to do so is often a sign of the relationship`s strength.
Leo, 33, a writer who lives with his wife, Anne, also a writer, and their young daughter in Chicago`s Edgewater community, says it couldn`t have worked out better. ”I was raised to do as much (as possible) if not everything on my own-not to rely on the generosity of other people to get by,” he says. ”But it was guilt-free and tangle-free.
”Both sets of parents were very supportive of the idea,” he says. ”In fact, they had encouraged us to look for a house. Our response at first was,
`Yeah, with what?` But they said, `How much do you need and what can we do?` ”
In 1989, Leo and Anne had found a house that they knew they couldn`t pass up. But the couple had what Leo calls their ”erratic and unstable credit history”-both are self-employed and had recently spent a year abroad living off their savings. The only way they could get a mortgage was to put down 25 percent of the purchase price-$40,000.
Some homeowners and Realtors tell stories of parents aghast at the cost of contemporary housing. ”Parents are shocked at the amount of mortgage their kids take out,” says Kishner. ”In their day, a $25,000 mortgage was a high mortgage.”
But Leo and Anne were fortunate. Both sets of parents had recently sold houses and knew the realities of the marketplace. Together, they offered Leo and Anne $30,000. The couple`s savings made up the difference.
When Leslie decided to go house-hunting, she had two worries: making a move before she was priced out of the housing market, and asking her mother for help.
”It took me a while to work up the nerve to say this is what I want to do,” she says. ”But by the time I brought the issue up to (my mother), she was really concerned with whether or not I`d ever have this kind of security that having a house brings you. She thought it was a good idea.”
The arrangement hasn`t been without a few bumps, which seem to be common when parents are involved in a house purchase. ”My mother lived most of her life in nice, middle-class suburbia. She came to look at this house with me, and she was staggered by the thought that any human being could live in a house this size, and that is was so old and decrepit. She was a nervous wreck.”
Having her own mother on board as a partner in a $100,000 loan definitely affected both what she purchased and how she renovated it, she says. ”For me the concern was, `What if I screw up?` In essence, I`m using part of my mother`s resources, which she may depend on when she gets older.” As a result, she says, she was ”very conservative” in what she picked to buy and in the renovation, for which she served as her own contractor.
But generally, the arrangement has worked out. ”She doesn`t see it as her house,” says Leslie. ”She sees it as my house. We split the tax deduction, so she gets the equivalent of interest. Hopefully, I`ll ultimately have the money to buy her out. But that could be 10 years from now and she knew that going into it.”
Just how widespread is the parent-child down payment connection?
Realtors and mortgage lenders say it`s a factor in about one-third of first-time home purchases. Chicago Title and Trust Company`s annual national survey of homeowners reported that, on average, ”relatives” contributed 10.2 percent of the first-time homeowners` down payment in 1990.
Of course, not every Baby Boomer wants, expects or needs assistance. ”My kids were not interested in that,” says Blanche Kishner.
But for those who do, some members of Congress are trying to smooth the way. Legislation introduced in March by Senators Lloyd Bentsen (D-Texas) and William Roth (D-Del.) would allow parents and grandparents to make penalty-free withdrawals from their IRAs if they are helping their children and grandchildren with down payments on first homes. The bill goes even further than the proposal made by President Bush in his State of the Union address, which would allow only the buyer to make penalty-free withdrawals.
In the meantime, says Augustyniak, any child who is reluctant to ask for help or whose parents aren`t in a position to give it has plenty of other options-although finding them might take a little work.
”There are FHA loans, IHA loans,” he says, adding in a fatherly manner, ”It`s just a matter of getting off your duff and seeking these out.”
