Recent data from the National Association of Realtors shows that nearly a quarter of all first-time home buyers receive a financial gift or loan from a family member to help with their purchase.
With the ever-increasing cost of homeownership and the typical age of a first-time buyer hitting record highs, this trend makes perfect sense. In today’s market, it is incredibly difficult for a young adult to achieve the American dream completely on their own. More and more, we see parents stepping in to help their adult children buy a home by providing financial support.
Are you a parent considering this route? We are here to help. First, allow us to share a few tips we’ve learned over the years that will make the process smoother for everyone. Then, we will outline the various ways a parent can provide financial help in 2026—and the critical tax rules you need to know.
First Things First: Decide What Your Role Is
From the beginning, you and your child should decide how you’d like to be involved in the process of finding and purchasing the new home. The options for parental involvement range widely:
- Do you want to let your child pick the property and just offer financial help?
- Do you want to have approval over their final choice?
- Do you want to be actively involved in the search, receiving MLS alerts and attending showings?
- Do you want to be involved in the negotiations and the home inspection?
Most importantly, you must decide upfront whose names will be on the sales contract, the mortgage, and the deed. If your name will be on any of these legal documents, you will need to play an active role, sign paperwork, attend key meetings, and provide your own financial documents to the lender.
Learn more about buying your (or your child’s!) first home:
- Can Millennial First-Time Buyers Skip the Starter Home?
- Should First-Time Home Buyers Buy a Condo or a House?
- Is it Too Late to Buy Your First Home?
Communication is Key
Be sure you both let your Realtor know that you are helping with the purchase. Agents always appreciate knowing who the decision-makers are and their level of involvement.
Once you’ve decided your role, tell the Realtor how much communication you want to receive. Perhaps you want to be copied on all pertinent emails and conferenced in on important phone calls, or maybe you only want to be updated once a home is officially under contract. Keep the lines of communication open so everyone is on the same page.
Ways to Help
There are a variety of ways a parent can provide financial support. The options range in complexity, so always consult your financial and legal professionals before making a move.
1. Make an Outright Gift
Giving a cash gift for a down payment or closing costs is the most straightforward way to help. Putting cash toward the down payment can help your child cross the 20% threshold, allowing them to avoid the expensive monthly burden of private mortgage insurance (PMI).
The 2026 Rules: Under current tax codes, you can give up to $19,000 to each of your children per year without having to file a gift tax return. If you are married, you and your spouse can combine this for a total of $38,000 per child, per year.
If you want to give more than that, you can! You won’t owe out-of-pocket taxes on the excess; you simply have to report it to the IRS on Form 709, and it will be deducted from your massive lifetime gift and estate tax exemption (which sits at over $15 million per individual for 2026).
Note: Your child’s mortgage lender must be informed of this gift early in the pre-approval process. They will require you to sign a “gift letter” legally stating the money is not a secret loan that needs to be repaid.
A word of caution: Always make sure you can afford to help. Do not dip into your retirement accounts to fund your child’s homeownership dreams. There are many ways to finance a house; there are no loans for your retirement.
2. Cover Other Expenses
If you want to help without handing over cash for the house itself, you have other excellent options. You could allow your child to live with you rent-free to save up for their own down payment. Alternatively, you could pay off their remaining car loan or student loans. Eliminating their existing debt lowers their Debt-to-Income (DTI) ratio, which directly increases the size of the mortgage a bank will approve them for.
3. Be the Landlord
If you have the capital, you can purchase the home as an investment property and have your child rent it from you. You can then sell the home to your child down the road when they have established more financial stability.
4. Provide a Family Loan (Proceed with Caution)
Some parents prefer to act as the bank and provide a formalized family loan for the mortgage or the down payment. While this can be a great tool, the IRS rules here are strict.
The 2026 Rules: You cannot simply give your child a massive, zero-interest loan. The IRS requires you to charge a minimum interest rate known as the Applicable Federal Rate (AFR). If you charge less than the AFR, the IRS considers the forgone interest as “imputed income.” This means you, the parent, will owe income taxes on the interest you should have been collecting, even if you never actually charged your child a dime.
Furthermore, if your child wants to deduct their mortgage interest payments on their own taxes, the family loan must be legally recorded as a lien against the property. They will also only benefit from this if their total tax deductions exceed the standard deduction, which is a higher bar to clear these days. If you go this route, a real estate attorney and tax professional are mandatory.
5. Jointly Apply for the Mortgage
Think of this as the option of last resort. You should ONLY co-sign a mortgage if you are 100% confident your child can handle the monthly payments, taxes, and insurance.
If you co-sign, you are legally on the hook for the debt. Furthermore, the entire mortgage balance will show up on your personal credit report. This could heavily impact your own Debt-to-Income ratio, potentially preventing you from securing a loan if you decide to buy a car or downsize your own home. Down the line, if your child’s finances improve, they can refinance the mortgage solely in their name to release you from the liability.
For more first-time buying tips, read these posts next:
- A Financial Guide for First-Time Home Buyers
- Signs You Are ready to Buy a New Home
- Buying Vs. Renting
The Bottom Line
When helping your adult child buy a home, set clear boundaries, communicate openly with your real estate agent, and understand the modern financial rules of the road. Document everything—especially gift letters and family loans—and always seek guidance from your CPA and a trusted Realtor before signing on the dotted line.
Whether you’re buying for yourself or your kids, The Goodhart Group is here to help! Get in touch with us today to start the conversation.
Sue Goodhart | sue@thegoodhartgroup.com
Allison Goodhart DuShuttle | allison@thegoodhartgroup.com
Phone: 703-362-3221
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