With home prices continuing to climb, during periods when interest rates are elevated, and many young adults juggling student loans, starting families, and modest savings amounts, buying a first home has become more challenging than ever. Even those with good jobs often struggle to accumulate a minimum down payment, especially in higher-cost cities and suburbs.

If you are able to financially help your child or grandchild buy a first home, whether through a down payment or by purchasing the property outright, that support can make a meaningful difference for the rest of their lives.

But it’s important to consider how that gift or purchase fits into your larger financial and estate planning picture.

Gifting a down payment or even the full purchase price is often the most direct way to help. However, there are IRS rules to consider and potential ripple effects regarding your estate plan.

Here’s how it works:

• You can gift up to $18,000 per person in 2024 without triggering a gift tax return.
• Larger gifts apply to your lifetime exemption (currently $13.61 million per individual through 2025).
• Mortgage lenders often require a gift letter confirming that the funds need not be repaid.
  

Pros:

• Boosts mortgage approval odds
• Simplifies ownership
• No repayment stress for your child
  

Watch for:

• Unequal gifts between children could cause conflict
• Must be properly documented
• Impacts your long-term estate and tax strategy

As a fee-only fiduciary financial advisor in Woodbridge, CT, we help our clients make smart financial decisions when gifting a down payment or purchasing a home for a child or grandchild. We guide you through the tax, legal, and long-term planning considerations to avoid costly mistakes and help you understand how it fits into your personal wealth plan.

Helping your child buy a home is a generous move, but it can come with serious consequences that require thoughtful decision-making. Should you gift them the money outright or offer it as a loan they’ll repay over time? How will this impact you and your spouse’s lifestyle during retirement? 

Both options can help children get into the right house sooner, but each has different financial, legal, and emotional implications. Before you write the check or draft a loan agreement, understanding how each approach affects your finances, financial future, and pursuit of your overall estate planning goals is worth a few minutes of your time.

If you prefer something more structured, consider offering a low-interest intra-family loan instead of a gift. This type of loan can be a smart alternative to giving your child a large financial gift. 

Instead of transferring money outright, you structure the support as a formal loan with a written agreement, repayment terms, and an interest rate that meets or exceeds the IRS’s minimum (the Applicable Federal Rate, or AFR). 

This allows your child to borrow money on more favorable terms than a traditional mortgage, while keeping the funds and payments in the family. It can also help you avoid triggering gift taxes and still provide flexibility in your estate planning. 

However, to meet the IRS’s requirements, the loan must be adequately documented and paid down like any other loan agreement.

Benefits:

• Keeps funds in the family
• Provides financial accountability
• May generate another source of income for you
  

Risks:

• If repayments default, the IRS could reclassify the loan as a gift
• Could strain the relationship if expectations aren’t clear
• Needs to be appropriately documented to avoid tax issues
  

If you’re unsure whether gifting or lending is the right path, talk with a Woodbridge financial advisor who can help you model each option’s potential financial impact to see the consequences.

For many parents, helping a child buy their first home feels like a natural next step, especially in today’s housing market, where high prices and strict lending standards can be significant hurdles. 

Another frequent way to help is by co-signing or co-borrowing on the mortgage. While this approach can make homeownership more accessible for your child, it’s essential to understand what you’re signing up for. Your name on the loan comes with real financial and legal responsibilities that could affect your credit, future borrowing power, and financial plans. 

Here’s what to consider before moving forward:

Key differences:

• Co-signing means you’re financially responsible but don’t own the home.
• Co-borrowing means you’re on both the mortgage and the property title.
  

Pros:

• It may help your child qualify for better loan terms
• Provides a way to monitor mortgage payments
• There is no need to transfer large sums upfront
  

Cons:

• You’re legally liable if payments are missed
• Affects your debt-to-income ratio
• Could impact your ability to borrow for your own needs
  

Before co-signing, speaking with an AIF® in New Haven is prudent to understand how this might affect your financial plan or credit outlook.

When your adult children are ready to buy their first home, many parents want to help, but handing over a large sum or co-signing on a mortgage isn’t always the right fit. For some families, buying the property outright as an investment can be a more practical alternative. 

This approach allows you to retain ownership and control while providing your child with a desirable place. It can also open the door to potential rental income, long-term appreciation, and strategic tax planning opportunities.

How it works:

• You purchase the home in your name
• You decide whether to charge rent or allow a child to live there rent-free
• You retain control over the asset

Advantages:

• Offers control over how the property is used
• It could generate rental income
• Flexibility to sell, gift, or pass down later

Challenges:

• Higher mortgage rates and stricter lending requirements for investment properties
• You assume landlord responsibilities if rent is involved, or you have to hire a property management company to handle this for you
• Tax implications depending on how the property is used

This strategy can be especially helpful where demand for housing remains strong and real estate holds a substantial long-term investment potential. Consider working with an AIF ® financial advisor in Hartford to determine if this strategy suits you and your financial situation.

Watch our founder, Paul Schatz, on Fox Business.

If you’re planning to purchase a home or help your child buy one, a Qualified Personal Residence Trust (QPRT) might be a smart estate planning move to consider. A QPRT allows you to transfer a primary or vacation residence from your estate at a reduced gift tax valuation, potentially saving significant estate taxes. 

It’s a strategy worth exploring, especially if you are a high-net-worth individual looking to support your family while managing future tax exposure.

A QPRT is a more advanced estate planning strategy that can tax-efficiently transfer real estate to children.

How it works:

• You place the home in a trust, retaining the right to live in it for a set number of years
• After the term ends, ownership transfers to your child at a discounted taxable value
  

Pros:

• Shrinks the size of your taxable estate
• Locks in today’s home value for transfer purposes
• You continue living in the home for now
  

Considerations:

• You must outlive the trust term for the full tax benefit
• The home becomes your child’s property when the term ends
• Limited flexibility once the QPRT is established
  

This can be a powerful tool, but it should be reviewed with a local estate planning attorney and an AIF® in New Haven to understand its long-term implications

Helping one of your children buy their first home can be a generous and meaningful gesture, but it also raises important estate planning questions, especially if you have more than one child. 

Whether you’re gifting money for a down payment, offering a loan, or co-signing a mortgage, these decisions can affect how your estate is ultimately divided. Without a clear plan, what feels like support today could lead to misunderstandings later. 

Helping one child buy a home can cause friction later if it’s not handled thoughtfully, especially when you have more than one child. To maintain fairness and transparency, consider:

• Offsetting gifts in your will or trust
• Documenting large lifetime gifts
• Talking openly with family members to avoid misunderstandings
  

If your financial help now is intended as part of that child’s inheritance, put that in writing. A Hartford financial planning professional can help you update your estate documents to reflect these choices clearly and fairly.