4 Ways Parents Help Kids Buy Homes, From Gifts to Loans

About a quarter of Gen Z and millennial homeowners received parental down-payment help, per a LendingTree survey, as four strategies dominate the "Bank of Mom and Dad" in a housing market where young buyers face steep entry costs.

"That's the only thing that's clean cut," said Mark Sanaiha, founder of Macallen Capital in Phoenix, referring to gifting as the most straightforward way parents can help.

The four approaches — gifting, intrafamily mortgages, cosigning, and buy-and-lease — each carry distinct trade-offs. Gift funds must be declared in writing to the child's mortgage lender, and amounts above the $19,000 annual gift tax exclusion per donor per recipient may require tax documentation. Intrafamily loans can be structured below market rates but require parents to adjust their asset allocation. Cosigning puts the parent's credit on the line, while buy-and-lease provides housing without building the child's equity or credit.

The stakes extend beyond dollars. Experts warn parents never to dip into retirement savings and to put every arrangement in writing, because a defaulted intrafamily loan or missed mortgage payment can strain both finances and family relationships.

Gifting and Intrafamily Mortgages

Gifting is the simplest route. Government-backed mortgages allow gift funds, said Scott Sheldon, branch manager at SecurityNational Mortgage Company. But parents and the adult child must declare in writing to the child's mortgage lender that the funds are a gift, not a loan. After signing the gift letter, the down payment funds should be wired directly to escrow to create a clean paper trail for federal compliance.

Tax documentation may come into play if the gifted amount exceeds the annual gift tax exclusion of $19,000 per donor per recipient for the current tax year. That means a married couple could gift up to $38,000 to one child in a single year without triggering filing requirements. The exclusion is adjusted annually for inflation, so parents should verify the current figure against the latest IRS guidance.

An intrafamily mortgage offers an alternative. Parents can lend at a rate below market, allowing the child to build equity and creditworthiness while potentially taking the mortgage interest deduction. The parent gains a secured investment with regular monthly payments.

"The parent may need to possibly adjust their asset allocation for the rest of their investments," said Michael Whitty, an estate planning attorney at Smith Gambrell Russell in Chicago, who is also a certified financial planner. "Because now they've got this one big fixed-income investment that they didn't have before."

Sanaiha recommends using a company like National Family Mortgage for intrafamily loans, which handles structuring, the promissory note, and payment tracking. "It's very simple for clients to understand, and this matters a lot for audit-proofing the actual transaction," he said.

Cosigning and Buy-and-Lease

Cosigning a mortgage is another route if the child can't qualify on their own. But it means the parent's name goes on the property deed, and lenders require full documentation — credit scores, income, pensions, and Social Security. The biggest drawback: if the adult child misses payments, the cosigner's credit score is on the hook.

Whitty suggests an alternative: signing on as a guarantor rather than a cosigner. "There's no recourse against the guarantor until the mortgage is subject to foreclosure," he said.

The final option is buying the property outright and renting it to the child. This provides housing but doesn't help the child build credit or home equity. It works well for short-term needs, such as a child in graduate school, after which the property can be rented to other tenants.

All four arrangements hinge on the security of the parent's finances and the relationship with the child — and any other children. Thomas Ravert, a certified financial planner with Pathway Capital in Nyack, N.Y., said parents should never dip into retirement savings. Any funds for a child's home purchase should come from an investment account or regular savings.

"You just can't put your future at risk, because you want to do something nice for your kid," Ravert said.

Parents should also consider what other children may expect if they help one sibling, and go in with eyes open if helping a child with a history of financial irresponsibility. Above all, make everything official. "Put it in writing and be gentle," Ravert said. "But be honest."

This article is for informational purposes only and does not constitute investment advice.