What Families Should Know Before Helping Adult Children Buy a Home

With homeownership becoming increasingly expensive, some parents are considering ways to help their adult children purchase a home. Financial assistance may take several forms, including gifts toward a down payment, intrafamily loans, or assistance with mortgage financing.

While these arrangements can help make homeownership more attainable, they may also create tax, financial, and estate planning considerations for both parents and children. Understanding the available options and establishing clear expectations can help families evaluate the potential implications before providing assistance.

Providing Financial Gifts for a Home Purchase

One option is for parents to provide funds used toward a down payment or other homebuying expenses.

For 2026, the federal annual gift tax exclusion is $19,000 per donor, per recipient. Married parents may generally provide a combined $38,000 to each child without using their lifetime gift and estate tax exemptions, provided the applicable requirements are satisfied. If spouses elect to split gifts for federal tax purposes, filing IRS Form 709 may still be required.

Gifts exceeding the annual exclusion do not necessarily result in immediate gift tax liability. However, they generally require reporting on IRS Form 709 and may reduce the donor’s remaining lifetime gift and estate tax exemption.

Families should also consider how gifted funds may be treated if the recipient is currently married but later gets divorced. Proper documentation can help clarify the intended recipient and purpose of the gift, although the treatment of these assets depends on applicable state law and individual circumstances.

Using an Intrafamily Loan

Rather than providing an outright gift, parents may choose to lend money to their children to help finance a home purchase.

An intrafamily loan allows families to establish repayment terms that may differ from those offered by traditional lenders. However, the arrangement should be properly documented through a written agreement outlining the loan amount, interest rate, repayment schedule, and other relevant terms.

To avoid certain unfavorable tax consequences, family loans generally should charge interest at least equal to the applicable federal rate (AFR) published by the IRS. Below-market loans may trigger special tax rules that treat forgone interest as a gift and may require the lender to recognize additional taxable interest income, even when that interest is not actually received.

Interest received on a properly structured family loan generally represents taxable income to the lender.

Before establishing an intrafamily loan, families should evaluate the borrower’s ability to make payments and consider how the arrangement may affect both parties’ financial circumstances.

Considering Mortgage Assistance and Cosigning

Another option is for parents to cosign a mortgage or provide a secondary loan alongside their child’s primary mortgage.

Cosigning may help a child qualify for financing, but it can also expose parents to financial risks. A cosigner generally becomes responsible for the debt if the primary borrower fails to make payments, potentially affecting the cosigner’s credit and borrowing capacity. Cosigning also does not necessarily provide the parent with an ownership interest in the property.

Parents who provide a secondary mortgage may be able to offer different borrowing terms, but the arrangement must be coordinated with the primary mortgage lender and satisfy applicable lending requirements.

Families should carefully review the obligations associated with these arrangements and consider how they may affect future borrowing, retirement planning, and other financial priorities.

Planning for Unexpected Changes

Family financial arrangements should also account for circumstances that may change over time.

Divorce, job loss, financial hardship, or the death of a family member can complicate arrangements that initially appeared straightforward. Parents may also decide that they need access to the funds that were previously expected to remain available for children to purchase a home.

Clear documentation can help establish whether funds were intended as a gift or loan and how outstanding obligations should be handled if circumstances change.

Families may also want to consider whether financial assistance provided to one child affects their broader estate planning objectives, particularly when multiple children or beneficiaries are involved.

Planning Considerations

Helping an adult child purchase a home can involve several financial and tax considerations, and the appropriate approach will depend on each family’s circumstances.

Before transferring funds or assuming mortgage obligations, parents should evaluate their own financial position, understand the applicable tax rules, and establish clear expectations regarding repayment and ownership.

Coordinating these arrangements with existing estate plans and long-term financial objectives may also help families identify potential issues before making a commitment.

How LMC Can Help

Financial assistance between family members can involve complex tax and planning considerations. At LMC, we can help individuals and families understand the potential tax implications of gifts, intrafamily loans, and other arrangements used to support a home purchase. Contact your LMC advisor with any specific questions about your unique circumstances.