Key takeaways

  • There are a variety of ways to help your child buy a home, including gifting funds, facilitating a loan or serving as a co-signer to put a mortgage within reach.
  • There are pros and cons to each approach, including important tax and retirement considerations that should be weighed before deciding how and how much you can assist.
  • While it’s great if you’re able to help your child achieve a homeownership goal, make sure it doesn’t come at the expense of your own financial future.

The housing market has been a hot topic, and for good reason: while home prices may have begun to cool from a peak in 2022, the annualized return still sits at nearly 11.5%.1 Additionally, as of May 2023, new home sales surpassed 763,000 (versus 675,000 expected), which marks the highest level of the past 15 months.2 This comes in spite of the fact that average mortgage rates have continued to hover at 6%-7%, more than double averages in 2021. If you’ve got sticker shock just looking at these numbers, you’re not alone.3 Prices at this level can mean that many prospective buyers — particularly younger people who haven’t been able to save the substantial down payment required to own a home — are being shut out of the market.

If you have a child who will be unable to realize their homeownership goals, it’s natural to want to help. Here’s a look at several ways you can leverage your wealth to help make purchasing a home possible in today’s tough real estate market.

Give a monetary gift

If you have cash on hand, you can gift money for a down payment or other expenses related to the home-buying process. Closing costs and attorney’s fees are often quite expensive, so even covering just those items for your child could go a long way.

For 2023, you can generally gift up to $17,000 per person without needing to file a gift tax return.4 If you have a spouse, they’re also eligible for the $17,000 annual exclusion and you can split gifts with them. This means that if you and your spouse were helping your single child buy a home, you could give them $34,000 in total without facing gift tax consequences. Or, if your child has a partner, you and your spouse together could give $34,000 to each of them, for a total of $68,000.5

Mortgage lenders are often willing to allow the entire down payment on a home to be made up of gifts, but lenders may need to verify that your gift isn’t a loan. This means you’ll need to provide a “gift letter” specifying the details and date of the gift and attesting that you do not expect to be paid back at a later date.

Offer your child a loan

If you’d like to help your child realize their immediate home-buying goals but you don’t have sufficient funds to give monetary help as a gift, then you might want to consider serving as the mortgage lender. Offering a loan directly to your child can enable them to afford a neighborhood or property that might have otherwise been out of budget. If this is an option you are willing to consider, speaker with your tax professional to ensure you are aware of income and gift tax considerations relating to the form and terms of the loan.

Consider co-borrowing

If your child has yet to establish a credit history, or if they have a negative credit history, then securing a mortgage may be difficult for them. Also, if your child is saddled with a lot of student debt, their debt-to-income ratio may be too high to qualify for a mortgage.

This is where co-borrowing comes in, and it functions exactly like it sounds — you and your child both apply for the mortgage, and you’ll both sign the loan. Your strong credit history and reliable income may be enough to offset any weak points in your child’s profile so that lenders feel more secure. Just keep in mind that the lender takes your title as co-borrower very seriously. You and your child are equally responsible for the loan, and if they miss mortgage payments, your credit could be impacted, or you could end up paying off the loan yourself. Also, co-borrowing isn’t a magic bullet for your child because they still need to be able to show the lender that they have a steady job and a stable income.

Penalty-free IRA withdrawal

If you have enough assets in your IRA(s) to meet your future goals and you are under age 59½, there’s an option to help your kids without incurring the 10% early withdrawal penalty tax.

With an IRA, there’s an option to withdraw up to $10,000 without being subject to the 10% penalty tax which could otherwise apply to your IRA withdrawals if you are younger than 59½, as long as that money is used to help your child buy their first home. Your spouse may be able to do the same, giving you and your spouse the ability to withdraw $20,000 without incurring the penalty tax. It’s worth noting that the same penalty tax-free withdrawals can be made for your grandchildren (and other qualifying first-time home buyers) as well, but the total amount of first-time homebuyer distributions you can take over your lifetime can’t exceed $10,000 – and the money must be used for qualified acquisition costs within a certain period of time.6,7

Of course, if you are 59½ or over, the early withdrawal penalty tax no longer applies. Keep in mind, withdrawals for a first-time home purchase (or any other purpose) at any age are subject to the normally applicable income tax rules (including potentially tax-free distributions from Roth IRAs).  Please consult IRS Publication 590-B for more information. A tax professional can help evaluate your options.

Don’t compromise your own financial future

As a parent, you want to help your child realize their life goals, but you should never do anything that can compromise your own financial future. If, for example, giving your child monetary support will mean that you’re forced to stop contributing to your own retirement accounts, or that you’re potentially going to compromise your standard of living, then it’s best to offer your child a different form of support.

There are so many ways to help. For example, if you have the space, you could consider offering your child a chance to move back in with you and put the cash that they would be putting toward rent every month toward a future down payment. You can also help walk them through the mortgage process, accompany them on home tours, serve as handyman once they get settled and so much more. At the end of the day, your love and guidance is likely what matters most to your children. 



S&P Dow Jones Indices, “S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index.” (April 2023).


J.P. Morgan, “Quick Shot: Boomin’.” (June 2023).


Freddie Mac, “Mortgage rates move up modestly.” (June 2023).


Hellmuth & Johnson, “Can you afford to be your child’s mortgage lender?” (June 2022).


IRS, “Frequently Asked Questions on Gift Taxes” (June 2023).


IRS, “Topic No. 557, Additional tax on early distributions from Traditional and Roth IRAs.” (April 2023).


IRS, “Publication 590-B Distributions from Individual Retirement Arrangements (IRAs).” (2023).

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