How to Help Your Child Buy a House without Disrupting Your Retirement or Estate Plan

Over the past few years, record-high housing prices along with generationally high interest rates have combined to make buying a home seemingly impossible for a lot of young adults.

For a lot of people, the challenge isn’t necessarily being able to afford the monthly payments – it’s saving up tens of thousands of dollars for a down payment while the cost of living is so high and wages haven’t always kept pace. With the median home priced around $400k, a traditional 20% down payment would be about $80k (plus closing costs, of course).

It’s no wonder a lot of parents are stepping in to help with the down payment if they’re able. Almost a quarter of first-time home purchases in 2025 involved help from family or friends, and we’re hearing from a lot of people who want to know the smartest ways to get their child on the property ladder.

While throwing money at the problem might give you a sense of relief, there are important tax and estate planning considerations, not to mention the potential impact to your own finances. But you can still help – you just need to be intentional and thoughtful with your decisions. Here’s a good way to approach helping your adult child buy their first home.

STEP 1: CONFIRM YOUR OWN INCOME AND LIQUIDITY NEEDS FIRST

This is perhaps the most important thing to know: You shouldn’t put your own financial future at risk to help kids buy a house. While there are a variety of loan and homebuyer programs to help first-time homebuyers, no one is going to loan you money for retirement. And the burden of helping you financially in your old age, should that unfortunate scenario come to pass, is almost certainly going to fall on your children – so letting your own well run dry ultimately hurts everyone.

Whether your kids plan to pay the money back or not – and we’ll get to that next – you should assume any money you commit is gone. That means you should work with your financial advisor to run projections and confirm you’re still well-positioned to meet your retirement income goals.

As you do so, keep in mind the high potential late-in-life costs of health care and long-term care. And stress-test your withdrawal plan to account for weak markets in retirement; it’s almost certain you’ll see some at some point, but bad markets early in retirement have the most impact.

What if you’re planning to buy the house yourself? A house isn’t likely to totally lose all value, so that money isn’t really “gone,” but houses historically aren’t a great investment from a return perspective and they can definitely go down in value. Regardless, if and when you need that money, real estate isn’t liquid, so it will be harder to access it. And what if your child is still living there without any place to go? Don’t jump to this “solution” without really digging into the realities.

One more important check before you move forward: Be sure your child will be able to afford the home you’re planning to help them buy. After the sale is over, there are monthly payments, insurance, taxes and maintenance costs to consider – not to mention furnishing the house. They may not understand the full reality of homeownership costs the way you do; don’t let your generosity enable them to bite off more than they can chew.

STEP 2: DECIDE – IS IT A GIFT, A LOAN OR SHARED OWNERSHIP?

GIFTING A DOWN PAYMENT

When gifting money to a child to buy a house, you obviously won’t be repaid. On the positive side, you won’t have to worry about the emotional baggage that can come with loaning family money.

A gift isn’t considered taxable income, but you might have to file an IRS Form 709 to report it. You won’t owe any gift tax (unless you already used up your lifetime exemption - $15 million per individual; $30 million per married couple for 2026), but it will count against the amount you can transfer during your lifetime and after death without gift or estate tax.  

If the gift is $19,000 or less (or $38,000 for a married couple), you don’t have to report it.

LOANING THE FUNDS

If you choose to loan the money instead, you’ll have to make sure the IRS doesn’t confuse it for a gift, which could cause tax issues. To make everything above-board from a tax perspective:

• Use a formal promissory note that documents the repayment terms
• Charge the minimum IRS Applicable Federal Rate (AFR) of interest
• Document all payments as they’re made
• Report the interest as income on your federal tax return

Of course, clarity doesn’t just benefit the IRS. It can also help keep everyone in your family on the same page about expectations. That can reduce interpersonal issues, but it’s not a guarantee. Ask yourself how you’ll feel if your child misses a payment. What if they miss a payment and then take a nice vacation? What if they lose their job and don’t make payments for an extended period of time?

One other consideration when deciding between gifting and loaning the money: A mortgage lender will view this loan just like any other debt your child might have, meaning it could reduce or eliminate their ability to get a mortgage. Make sure they’ve accounted for this in their plans.

If you choose to forgive all or part of the loan in the future, you can do so, but it will be treated as a gift for federal gift tax purposes. 

CO-SIGNING OR CO-BORROWING

If you don’t feel comfortable gifting the money but loaning it won’t work either, you may consider co-signing the mortgage or even being a co-borrower.

The biggest risk here is that you’ll be fully liable for the loan payments, so if your child can’t make them for any reason, your choices are either to make them yourself or destroy your credit. And keep in mind you might not even know payments aren’t being made until there’s already been a credit impact.

Even if payments are made as scheduled, the new loan will likely affect your credit score by increasing your debt-to-income ratio. Should you decide to move in the future, it could hurt your ability to get your own mortgage.

You typically don’t have to be listed on the deed to be a co-signer. You may be required to be on the deed (as a co-owner of the house) to be a co-borrower. If that’s the case, having an ownership interest in the house can also open you up to legal liability for things that happen there.

As a co-owner, you’d also be jointly responsible for property taxes – and some localities reassess properties every time they change hands, so they could be higher than you expect.

GIFTING A HOME

If you’re downsizing and you live in the area where your child is looking to buy, you might think you should simply gift them your current home, especially if you’re looking to avoid large built-in capital gains resulting from inflation in home values over the last decade.

You can do this if you want, but it will almost certainly be a reportable gift and could eventually trigger large capital gains taxes for your child. When a child receives the gift of an appreciated home, they also receive your cost basis. Unlike property that passes after your death as part of your estate, they won’t get a step-up in basis.

STEP 3: UNDERSTAND THE TAX AND REPORTING RULES

What you’ll need to know and do from a tax perspective depends on your scenario. Make sure you understand the tax implications for both you and your child before you proceed.

Broadly:

• If you’re gifting the money, keep in mind the annual gift exclusion limits and lifetime exemption tracking if you go above them. If you expect to hit the overall lifetime gift and estate tax exemption, make sure you consult with a tax professional to talk about how the gift might impact your future legacy plans.
• If the money you want to gift is currently invested, you have a couple options: You can sell the investment, potentially triggering a capital gains tax bill, and then gift the cash, or you can gift the appreciated securities directly, in which case your child will assume your cost basis and any embedded gains and owe the capital gains tax when they sell to get the cash needed for the purchase.

However, they may be in a lower tax bracket than you are, so this could result in a lower bill overall.

• If you’re loaning money, follow the requirements to make sure it’s not considered an unreported gift by the IRS, and remember to document everything. Also note that the interest you collect on the loan is taxable.
• If you’re a co-owner of the house, you may be able to deduct any property taxes and mortgage interest you personally paid on your federal income tax return.

STEP 4: TAKE THE STEPS NEEDED FOR MORTGAGE APPROVAL

Unless you’re gifting all the money needed for the purchase, your child will probably be getting a mortgage, and they’ll need to explain where the money you’re contributing is coming from.

• If it’s a gift, you’ll probably need to write a letter explaining that the money came from you and no repayment is owed. There may be rules about what portion of the down payment and closing costs can be gifted as well as other requirements for a gift letter that will satisfy their underwriters, and you may also need to provide documentation related to the money transfer.
• If it’s a loan, the terms will probably need to be explained in writing as well, and keep in mind that the additional debt could affect your child’s ability to qualify for the mortgage.
• If you’re co-signing the loan or acting as co-borrower, you’ll need a lot more documentation of your own financial situation, similar to getting your own mortgage. The bank will tell you what to provide.

STEP 5: PLAN FOR FAIRNESS AMONG SIBLINGS AND YOUR ESTATE

If you have multiple children, helping can get a little stickier. Some parents hope to sidestep any notions of favoritism by treating everyone equally, but that can be hard to do when it comes to something like helping them buy houses.

What if your other child asks for the same help in 5 years but your financial situation has changed and you no longer feel you can afford it? What if home prices are significantly higher or lower than they are now – will you keep the dollar amount the same, or change it? Either could be viewed as unfair or unequal. What if one child isn’t interested in buying a house but wants the money for an extravagant wedding instead?

Rather than making “equality” the goal, other families go for “equity” – everyone gets what they personally need. That can help alleviate some of these issues but create other ones. If your children have very different income-earning ability or savings practices, a good saver with a high income may feel punished if they get less help.

Another thing to think about is how gifts during life should be treated as part of your overall wealth transfer plan. For example, you may decide that children who need help now to buy a home or for other goals might receive less at your death than children who didn’t need that help. If that’s how you’d like these gifts treated, remember to update your will or trust document.

If it’s a loan, you’ll also need to update your estate plan to make clear what should happen if you pass away while a family loan is still outstanding. Should it be treated as a gift, or owed back to your estate?

One note of caution – it’s almost never a good idea to make secret agreements to avoid family conflict. It will likely come out in the end and lead to hurt feelings and even family rifts. Instead, you should transparently communicate gifts and loans, your intentions for the future and your reasons and values when it comes to passing money down. Everyone may not agree, but they’ll at least understand where you’re coming from.

ALTERNATIVE WAYS TO HELP WITHOUT WRITING A LARGE CHECK

Providing a substantial portion of the down payment for your child’s home can have a big impact on your own retirement security, tax situation and credit, as we’ve seen. But of course, you love your child and want to give them a good financial start into adulthood.

If you want to help but don’t feel you can commit to such a large gift or loan, here are some other ways to consider helping.

• Make smaller gifts, potentially over time, that could help put them in the position to buy a house after a few years
• Offer to match whatever they save toward a down payment
• Offer to cover closing costs, which are often around 3%-4% of the home purchase price for buyers
• Offer to help your child buy down their interest rate, giving them lower monthly payments (but remember that buying down a rate may not be the best use of funds if you think interest rates are going to fall in the future and a refinance could be on the table)
• If you can’t offer any financial assistance, don’t underestimate the value of your knowledge and experience with budgeting, credit and the homebuying process – and you can also offer to help them research first-time homebuyer programs or loan types that require a smaller down payment
• If it’s practical and works for your family, consider allowing them to live with you temporarily to save money – some families even charge rent and then gift it back as a lump sum when their child moves out

HOW TO APPROACH THIS DECISION INTENTIONALLY

Offering financial help for a child buying a house might seem simple, but there are some nuances to consider first. Of course, as long as you’re financially secure, we encourage everyone to use their money in the way that brings them joy and fulfillment!

Remember:

• Do your due diligence to understand how different scenarios could affect your retirement income and tax situation. And make sure your child will be able to afford homeownership costs after the sale is complete.
• Consider all the implications (financially and interpersonally) if things don’t go according to plan.
• Document everything in a way that meets IRS and lender requirements.
• Think about how the gift or loan fits into your overall wealth transfer plan and communicate the plan to your family.
• Update your estate documents if needed.

Rest assured that there’s a way to help your kids, and your advisor can help you find the right path for you.