Episode 262 – How to Help Your Adult Children Buy a Home

Housing prices are at record highs, leaving many parents wondering: “How will my kids ever be able to afford a home?”

In this episode of The Agent of Wealth Podcast, host Marc Bautis explores how parents can help their adult children buy a home without jeopardizing their own financial future. He breaks down four common strategies, explains the tax and planning implications of each, and shares how to approach the conversation with your family.

In this episode, you will learn:

• How gifting a down payment works, including 2025 gift tax rules and limits.
• What’s involved in setting up an intra-family loan – and how to keep it IRS-compliant.
• The risks and responsibilities of co-signing a mortgage.
• How buying a home and renting it to your child can benefit both parties.
• Alternative approaches such as shared equity agreements and covering ongoing costs.
• Why open and honest communication is the most important part of any plan.
• And more!

Resources:

Episode 164 – How Families Can Balance Paying For College And Saving for Retirement | Bautis Financial: 8 Hillside Ave, Suite LL1 Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call

​​Disclosure: The transcript below has been edited for clarity and content. It is not a direct transcription of the full episode, which can be listened to above.

Welcome back to The Agent of Wealth, this is your host Marc Bautis.

Quick question for you: Have you looked at today’s housing prices and wondered, “How on earth will my kids ever be able to afford a home?”

This is a concern I hear from a lot of parents today. And honestly, the numbers are eye-opening.

According to the National Association of Realtors, the median home price in the U.S. recently hit $435,300. That’s a record high. And what makes this even more striking is that home sales are actually declining – but prices remain elevated.

Why? Because we’re dealing with low supply, high demand, and wealthier buyers who are pushing first-time homebuyers out of the market.

It’s creating a divide between those who already own homes and are sitting on equity, and those who are trying to buy for the very first time. It doesn’t help that interest rates have increased over the past couple of years making the monthly payment on a mortgage more expensive.  Usually when that happens, home prices adjust downward.  That hasn’t happened.  

So if you’ve been thinking about helping your child, or children, but a home – today’s episode is for you. 

Now, helping isn’t just a “generous” act. It can actually be a way to strengthen your family financially, build legacy, and pass on important values. But you need to do it in a way that doesn’t put your own financial security at risk. 

It’s the same conversation I have with people when they’re juggling the two goals of saving for retirement and paying for their child to go to college. But I have an entire episode on that… It’s #164 if you want to check it out on agentofwealth.com. 

Today, we’re going to look at four common strategies parents use to help their children buy a home. We’ll also talk about some of the conversations and planning steps that should happen along the way.

Before we dive in, I just want to stress: every family’s situation is unique. What works for one may not work for another. Think of this episode as a starting point – a framework you can use to start exploring what’s right for you.

1. Gift a Down Payment

The first strategy is gifting a down payment.

This is one of the most common ways parents help their kids. A down payment gift can make a huge difference. It can boost your child’s buying power, help them avoid private mortgage insurance, and even lower the overall cost of the loan.

But, as with most financial strategies, there are rules you need to be aware of and follow.

Under the current gift tax rules, in 2025 you and your spouse can each give up to $19,000 per child – so that’s $38,000 combined in 2025 – without tapping into your lifetime estate and gift tax exemption. If you want to give more, you can, but it counts against that lifetime exemption. 

There is some confusion around gift tax and lifetime exemptions so let me explain it.  The $19k or $39k I just mentioned is the annual gift exclusion.  Means you can gift that amount and there is no form that’s filed on your tax return.

If you gift over that amount.  Let’s say you gift $200k to help with your child’s down payment.  You do not actually have to pay tax on the $200k.  Of the $200k, $39k will be considered the annual exclusion and $161k will be considered a gift that eats into your lifetime exemption.  The lifetime exemption for an individual is currently $13.99 million in 2025.  You can still gift $13,829,000 over your lifetime and no tax would be owed.  If you do gift over the $39k a form will have to be filed in your return and that’s how it’s tracked.  If your estate does not go over $13,829,000 no tax will be owed.  

Also, please note that tax rules can be complex and change over time. You should consult with a qualified tax professional before making any gifting decisions.

Now, mortgage lenders typically require a gift letter, which states that the money is truly a gift and doesn’t need to be repaid. That’s an important step to make sure the mortgage process runs smoothly. 

The caution here is to make sure that you’re not jeopardizing your own retirement security. Before you give away a big chunk of money, you want to be certain you’ll still have what you need to fund your own future expenses, like healthcare and retirement income. 

On the planning side, one way we approach this is to run a retirement projection without the gift compared to if we take the gift out of the plan what would the retirement projection look like. 

2. Make an Intra-Family Loan

The second strategy is to make an intra-family loan.

This is where you step into the role of the lender, instead of a bank. You can set an interest rate and repayment terms that are more favorable for your child while still making sure everything is structured correctly. 

The IRS does have rules for this. You can’t just hand over money and call it a loan. The loan has to charge at least what’s called the Applicable Federal Rate. And it should be documented in writing, with a payment schedule.

For September 2025, the Applicable Federal Rates for intra-family loans are:

• Short term (3 years or less) 4.00%
• Mid-term (3 to 9 years) 4.04%
• Long Term (over 9 years) 4.83%

If your rate rate is not as high as the AFR, the IRS could consider it a gift and then you are subject to the rules we just discussed under gifting.

If the loan is set up as a mortgage and properly recorded, your child may be able to deduct the interest, just like they would with a bank loan. On your end, you’d have to report that interest as taxable income.

What people like about this strategy is that it keeps the wealth within the family and can give your child some financial discipline. They’re making payments, they’re being held accountable, but they’re not being squeezed by today’s high mortgage rates.

3. Co-Sign the Mortgage

The third option is co-signing the mortgage.

This can be appealing if your child has steady income but maybe not enough credit history, or not the kind of debt-to-income ratio a bank wants to see. By co-signing, you essentially lend your financial strength to help them qualify.

But I want to be very clear here: co-signing comes with risk. When you co-sign, you are just as responsible for the loan as your child is. If they miss payments, it affects your credit. It also increases your debt-to-income ratio, which could impact your own ability to borrow.

Another factor is estate planning. If something happens to you, the fact that you’re tied to this loan can create complications for your estate.

So co-signing isn’t something to take lightly. It can be the right move in certain circumstances, but only if you’re fully comfortable stepping in to make payments if your child can’t.

4. Buy and Rent to Them

The fourth strategy is buying the home yourself and then renting it to your child.

In this case, you hold the deed and your child pays you rent – either at market value or maybe at a reduced rate. Down the road, you could sell the home to them.

The benefit here is that you maintain ownership, which means you also capture any appreciation. And your child gets a place to live, with the chance to buy later when they’re more financially prepared.

But there are trade-offs. When you own the home and they’re the tenant, you’re now in the role of landlord. That can put strain on your relationship if issues come up over rent, repairs, or responsibilities. 

If you go this route, it’s important to have clear expectations. Treat it as you would any landlord-tenant relationship, and put agreements in writing to avoid misunderstandings.

Alternative Approaches.

Now, those are the four main strategies. But there are also some alternative approaches you might consider.

One is a shared equity agreement. This is where you help with the down payment in exchange for a share of the home’s future appreciation. It’s a bit more complex to set up, but it can be a good middle ground if you want your contribution to be treated more like an investment.

Another idea is helping with ongoing costs rather than the purchase itself. That could mean contributing to monthly expenses, helping with moving costs, or assisting with maintenance. Sometimes a smaller, ongoing contribution is more manageable than a big lump sum.

One word of caution, though: I don’t recommend sipping into your retirement accounts – like IRAs or 401(k)s – to help with a child’s home purchase. Tapping these funds can create tax consequences and jeopardize your retirement security. It’s just not worth the risk.

The Non-Negotiable: Communication

No matter which path you take, here’s something non-negotiable: communication.

Money and family can be a tricky mix. Even with the best of intentions, misunderstandings can create tension. That’s why it’s so important to talk openly about expectations. 

Is the help a gift or a loan? What happens if a sibling feels things aren’t fair? What happens if circumstances change for you, or for your child?

These are tough but necessary conversations. And sometimes, having a third party – like a financial advisor – can help facilitate those discussions in a constructive way. 

So, to wrap things up: Helping your adult children buy a home is possible. But it requires thoughtful planning.

Step one is making sure your own financial foundation is secure. Step two is choosing the right strategy that fits your goals and your child’s needs. Step three is keeping communication front and center. And step four is getting professional guidance to avoid costly mistakes.

At the end of the day, this is about more than money. It’s about values, family, and the kind of legacy you want to leave.

If this is something you’ve been thinking about, I’d be happy to talk through your options. Together, we can explore what makes sense for your situation and create a plan that helps your children get a strong financial foundation – while making sure your own future is protected.

Thanks for listening to today’s episode of The Agent of Wealth. I’m Marc Bautis, and I’ll talk to you in the next one. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.

Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.