One of the ways lenders try to make sure mortgage applicants are good on their loans is by looking for a down payment. A down payment tells lenders that the applicant does currently have money, and is therefore probably capable of saving some portion of their income. But that starts to fall apart when the money isn’t theirs — if the down payment was gifted to the buyer, generally by their parents, the buyer doesn’t necessarily have any skin in the game. They may be more likely to default on their loan.
Homeownership is a struggle, especially in California where home prices are exorbitantly high. In many cases, first time homebuyers actually do need a little bit of help to get started. The Consumer Protection Finance Bureau (CPFB) has data available for the years 2009 to 2016, which states that 31% of homebuyers aged 25-44 received a down payment gift. Unfortunately, not all homebuyers are able to get one. Black households in particular are often lower income, and the parents don’t have excess savings to give to their children. Given how frequent gifting is, this is a considerable blow to Black homeownership. While down payment gifts may seem like a necessary evil to overcome low homeownership rates, in the end they primarily boost white homeownership, exacerbating racial inequality, and are also only temporary boosts, since they result in more foreclosures.