Buying a first home isn’t easy these days, as rising mortgage rates and student loan debt keep many young adults on the sidelines; that’s why more families are turning to parents helping with home purchases. Here’s what parents and their kids need to know before making this big move.
How are parents helping with home purchases today?
There are a variety of ways parents can help their young adult kids buy their first home, from gifting down payments to co-signing or co-buying. These forms of support can be life-changing, but they come with legal and financial implications.
Gifting money toward a home purchase: rules and tax tips
The most straightforward way to help is by gifting money to the kids. Current gift tax law allows each parent to gift up to $19,000 without the gift being reported by the parents for tax purposes. If you are married, you and your spouse can combine your exclusions. This effectively doubles the amount you can gift: $38,000 per child in 2025. However, if only one spouse makes the gift and exceeds the $19,000 limit, they must file a gift tax return (Form 709), and the other spouse must consent to the gift splitting. Since the taxable estate exemption threshold is almost $14 million, taxes are very rarely an issue for the parents. The recipient children owe no taxes, nor must they report the gift.
If the children are depending on the gift for a down payment on a mortgage, the lender may require a copy of a gift letter from the parents to the children.
Co-signing a mortgage: what parents should consider
Co-signing the mortgage is another way parents can help. This comes with an obligation on the children to make payments consistently and on time. If a payment is late, the lender’s collections representative will contact both the child and the co-signing parent. Late fees and default notices affect not only the child’s credit but also the parent’s, as a credit report on the parents reflects their co-signer status for the loan.
Co-buying a home with your child: shared ownership basics
Increasingly, parents are assisting by becoming co-buyers with their kids. In this scenario, an equity partnership is established, with co-ownership divided by percentage based on the kids’ and the parents’ respective contributions to the purchase.
Setting clear boundaries
When aid to the child’s home purchase is in the form of a gift, boundaries and expectations may be few or nonexistent.
However, parental co-signing or shared equity requires setting out in writing the requirements for all parties. It is not a matter of trust, but of clear communication to avoid disputes later about what was agreed upon. Money disputes have driven wedges between even close families.
- In a co-signing situation, the children must make timely payments. There should be a written agreement between the children and parents for repaying the parents in the event of late payments, default, or short sale. The parents’ credit will be damaged, so the consequences must be clear.
- In a shared equity situation, an agreement should outline the percentage of shared ownership by parties, who has decision-making rights for remodeling or leasing out the property, what to do if anyone wants out of the deal, how to handle a future sale, and any other decisions that affect the condition and value of the property.
When to involve a CPA or estate attorney
Parents and children should consult with a CPA and, if necessary, an estate attorney to understand how their decisions may affect everyone involved.
Related – Millennials: You CAN Save For a Home Down Payment
