Should parents give or loan money to help adult children buy a first home? It’s a difficult question because more than cash is involved.
Both parents and children must consider such issues as rates, terms, written agreements, family finances, and personal dynamics. That said, let’s look at the central questions families must consider.
Down Payment Size Matters
If a borrower puts 20% down, monthly payments will be significantly lower and the lender will not require mortgage insurance — a big savings. However, 20% down is impractical for most households.
That’s because the median existing home sold for roughly $414,900 in the fourth quarter of 2025, according to the National Association of Realtors (NAR). Twenty percent down on that price amounts to nearly $83,000 — an amount few families can afford to pay upfront.
If there’s more than one child to consider, the down payment problem can be even more difficult. NAR reports that first-time buyers in 2025 put down a median of 10% — the highest share since 1989.
NAR also says family help is important for many first-time buyers: 22% received down payment help from relatives or friends through a gift or loan.
Look for Down Payment Assistance
In addition to looking for loan programs with little down, families should also see if down payment assistance programs (DPAs) are available. DPA programs may offer options like grants, interest-rate reductions, and “soft” loans that may not have to be repaid.
Less cash is needed from friends and family if first-time buyers can get DPA help.
Understand the Annual Gift Tax Exclusion
According to the IRS, there’s a $19,000 annual gift tax exclusion for 2026. This means, for example, that a child can receive as much as $19,000 from a mother and $19,000 from a father — a total of $38,000 tax-free.
The parents can also give as much as $19,000 each to a spouse, or another $38,000 tax-free. In effect, families with sufficient resources can give a combined $76,000 tax-free to their children this year. In future years, they can repeat the process, since the annual exclusion is periodically adjusted for inflation.
Document Every Gift
It’s important to carefully document gifts because of annual limitations and possible estate issues.
Most households won’t have to worry about estate taxes, thanks to a large lifetime gift and estate tax exemption. Under the One Big Beautiful Bill Act, signed into law in 2025, this exemption was permanently increased and stands at $15 million per individual for 2026 — up from $13.99 million in 2025 — and will continue to be adjusted for inflation going forward.
How many households actually pay estate taxes? Historically, not many. In 2020, about 2.8 million people died, and of that number, roughly 1,900 paid a federal estate tax, according to the Tax Policy Center.
Free Rent
Many households do not have the financial ability to write a large down payment check. However, there still may be a way to help adult children get that first house even with few parental dollars.
According to the Census Bureau, roughly 19.7% of men and 12.3% of women aged 26 to 34 lived at home as of 2023 — the most recent breakdown available. Adult children may be able to save a substantial amount of money if they can live at home rent-free.
For example, if a local entry-level apartment rents for $1,500, then a working adult child who lives at home can effectively save that much each month. At the end of the year, there will be $18,000 in savings.
To finance a $400,000 home with an FHA mortgage requires 3.5% down, or $14,000. No doubt more will be needed for closing costs and such, but $18,000 is surely a good start — and, as we saw, one parent can give a tax-free gift to an adult child of up to $19,000 in 2026.
The concern with adult children living at home may involve family dynamics and social standing. But realistically, avoiding rent for a brief time to save a down payment can be a life-changing financial option for adult children interested in homeownership.
Down Payment Gifts
Parents may be able to help with a gift to pay some or all of the down payment. A “gift” is a form of assistance where no principal or interest will be paid. Lenders will require a letter showing that the money is a gift and not a loan.
The size of a down payment can vary, depending on how the property is financed. FHA loans typically require 3.5% down, while the HomeReady (Fannie Mae) and Home Possible (Freddie Mac) programs are at 3%. VA and USDA loans are also available to qualified borrowers with 0% down.
Keep in mind that these are program minimums. Individual lenders, including Refi.com, often require higher qualifying credit scores than the baseline program guidelines. Refi.com requires a 620 credit score for FHA loans and a 620 credit score for conventional programs like HomeReady and Home Possible.
Money not used for the down payment can be used to offset closing costs.
Mom and Dad Mortgages
If a family has sufficient assets, and if family dynamics allow it, it may be possible for adult children to get a loan from the Bank of Mom and Dad. The borrower may be able to get the best available rates, while the parents get a steady income stream.
With a parental mortgage, usual underwriting standards need not apply since this is a private loan. However, for tax and estate reasons — and so that everyone understands the financing terms — a written mortgage agreement is required.
It’s also worth noting: parents don’t necessarily need to lend cash directly. If a parent has significant equity in their own home, a home equity loan or HELOC can be a straightforward way to access funds for a child’s down payment without touching savings or investment accounts. Explore home equity options with Refi.com to see how much you could borrow against your home’s equity.
Cosigning
Although many families cannot provide down payment cash to home-buying children, they may well have another asset that can help: a willingness to cosign a mortgage.
This sounds easy at first. All the parents have to do is sign a few bits of paperwork and the deal is done.
No checks required, no need to raid financial accounts. However, cosigning can represent significant risk. By becoming a cosigner, the parents — along with the adult child or children co-borrowers — are each responsible for the entire loan.
The parents’ credit can be hurt if payments are missed or late. There can be additional interest and charges. The parents’ ability to get new financing for a home or car may be limited by cosigning a loan.
Shared Equity
We usually think of real estate as being either owner-occupied or owned by investors. If you’re an owner-occupant and itemize deductions, you may be able to get your share of tax deductions for property taxes and mortgage interest.
As an investor, you may be able to deduct your share of taxes and interest, as well as proportionate deductions for depreciation, repairs, utilities, HOA dues, insurance, and management costs.
It is possible to have a property owned by both an owner-occupant and a non-occupant investor. This is called shared equity, a form of ownership that first became available in 1981 under the Black Lung Benefits Revenue Act, an example of how things get done in Washington.
The way it works is that an investor and an owner-occupant put up the money needed to acquire the property. They then pay bills according to their ownership percentage.
The owner-occupant pays rent for the use of the investor’s interest in the property. The investor, in turn, must pay a part of the mortgage, taxes, etc. The loss or profit from a sale will be divided according to the shared equity agreement.
The Gift of Knowledge
Financing for first-time homebuyers often requires that borrowers take a brief real estate education class. There’s a lot of sense to such classes, but parents may want to go further: before buying anything, Mom and Dad can offer to pay for real estate license classes.
Such classes are a good way to learn about the real estate market and mortgage financing, plus — if graduates are interested — they may qualify to take the state real estate license exam and enter the field. Speak with local real estate brokers for class suggestions, and be aware that larger firms may have their own classes.
Professional Help
Such financial steps as loaning money, providing a gift, cosigning a mortgage, or investing with adult children are all business transactions and must be treated like one. This means documents must be prepared by an attorney, and that parents and children must have wills and related paperwork.
Also, such assistance may have substantial tax consequences, so it makes sense to speak with a tax professional.
Why such formalities? Because we don’t know what will happen in the future.
Relationships can change, there could be a divorce, a lawsuit might arise, etc. A written agreement can also provide clear guidance in the event of a dispute among family members.
And yes, it’s true — attorneys want to be paid. However, it’s a lot cheaper to get legal work done upfront than to finance lengthy court battles and tax disputes.
If you’re a parent weighing your own financing options to help a child buy a home — whether that means understanding what you could qualify for on a home equity loan, or simply seeing what rate you could get today — start a conversation with Refi.com. We can walk you through conventional and FHA options to help you figure out the best way to support your family’s homeownership goals.
