Helping Your Child Buy a House
By: Real Estate Hotline
Summer 2025 (Vol. 43, No. 2)
Helping your child or family member buy a house is a generous and impactful way to support their financial future. Here are several ways you can assist them, depending on your financial situation and their needs:
1. Gift a Down Payment
Most lenders will require buyers to make a down payment when securing a mortgage. Most loan types, including FHA and conventional will allow the use of gift funds to meet the down payment requirement. However, lenders may require a gift letter stating the money is not a loan. Your child may need to show proof of funds in their account for a few months before applying for a mortgage. The specific loan type may also limit how much must come from the buyer’s savings and how much can be gifted. In 2025., you can gift up to $19,000 per year per parent without filing a gift tax return (so $38k from both parents). Larger gifts may require filing IRS Form 709 but won’t incur taxes until exceeding the lifetime exemption ($13.99 million in 2025).
2. Co-Sign the Mortgage
If your child has a low credit score or insufficient income, co-signing can help them qualify. On the upside, they may get a better loan overall with lower rates and payment. But on the downside, you are equally responsible for the loan and it will affect your debt to income ratio. Since most mortgages are for 30 years, this can be a risky choice. You don’t own the property, but you still owe the debt.
3. Buy the Home Together (Co-Ownership)
You can purchase the home jointly (e.g., as joint tenants or tenants in common). This means you would have shared responsibility for payments but as a co-owner, you have shared ownership and equity. Complicates include potential disagreements over future sales, inheritance, and differences in capital gains and property taxes. For example, if you already claim a primary residence for federal and property tax purposes, your child as half owner of his primary residence would only qualify for half of any allowed tax exemptions.
4. Provide a Family Loan
You can lend your child the money at a low or no interest rate. If the loan is for more than $10,000, you do have to report the interest income for tax purposes. The IRS mandates that any loan between family members be made with a signed written agreement, a fixed repayment schedule, and a minimum interest rate. The IRS publishes Applicable Federal Rates (AFRs) monthly.
5. Set Up a Trust
You can buy the home and name your child as the beneficiary. This a good strategy to avoid probate and it may also provide tax benefits. A trust can also ensure the property is kept separate from marital assets and offer protection from any future creditors or claims.
6. Help with required Assets, Closing Costs or Mortgage Payments.
If the lender requires a minimum value of assets or the specific loan program does not allow a gift for down payment, try creative alternatives. For example, ask if you can gift stocks or other assets or if they allow gift funds to be used for closing costs (2%–5% of the home price) or help boost your child’s monthly income by setting up trust account payments.
7. Buy the House Yourself & Sell or Rent it to Them
You could purchase the home and then sell with owner financing or lease with an option to buy later. Make sure you have a formal agreement and record the sale. If possible, report their on time payments to a credit bureau. This strategy builds their credit and equity which will help them secure a mortgage in the future.
8. Plan Ahead
Explore local incentives like first-time homebuyer programs or community grants. If your purchase date is in the future, start the qualifying process now. Help them improve credit, budget, and save for future costs (down payment, maintenance, property taxes, etc.). Remember, even if your child graduates and starts earning high income right away, most lenders rely on a two-year history to qualify for the monthly payment. You could hire your child for a job and pay them monthly for the next two years, so they are mortgage ready when the time comes. Lenders require 2 years tax returns and a current pay stub so be sure the job meets IRS guidelines and is reported on their tax return.