As home prices and interest rates continue to climb in today’s competitive real estate market, many young adults face significant obstacles to achieving homeownership. In response, more parents are stepping in to help their children buy homes, whether through financial gifts, co-signing mortgages, or offering guidance throughout the buying process. This growing trend reflects both the rising difficulty of entering the housing market and the desire of parents to support their children’s long-term financial stability. In this blog, we’ll explore why this phenomenon has become more common, the various ways parents can help, and the financial and tax considerations to keep in mind.
What Percentage of Parents Help Their Children Buy a Home?
In recent years, it has become increasingly common for parents to assist their children in purchasing a home. Studies indicate that approximately 20-30% of first-time homebuyers receive some form of financial help from their families, whether through direct monetary gifts, loans, or co-signing on a mortgage. Rising home prices and student loan debt have made entering the housing market more challenging for young adults, prompting many parents to step in and provide support. This assistance can significantly boost a buyer’s purchasing power, but it’s essential for both parties to carefully consider the financial implications and establish clear expectations before making such a commitment.
How Can I Help My Adult Child Buy a Home?
Helping your adult child purchase a home can be a meaningful way to support their future, but it’s important to approach it thoughtfully. One common option is providing financial assistance, such as a monetary gift for the down payment or helping with closing costs. Co-signing their mortgage can also boost their borrowing power, although this means sharing financial responsibility if they are unable to pay. Alternatively, you could assist by offering a low- or no-interest family loan. Beyond finances, your guidance in navigating the homebuying process—such as helping them choose a reliable real estate agent or reviewing contracts—can be invaluable. Be sure to consider your own financial stability and consult a financial advisor or attorney to structure the assistance in a way that benefits both parties.
What are the Tax Implications of Buying a House with Your Child?
Buying a house with your child can have several tax implications that vary depending on how the purchase is structured. If you provide a financial gift toward the down payment or purchase, the IRS allows up to $17,000 per year (in 2024) to be given as a gift to an individual without triggering gift tax. Contributions beyond this amount may require filing a gift tax return, though taxes are not typically owed unless you exceed the lifetime exclusion. If you co-own the property, you may share in tax benefits like mortgage interest and property tax deductions, but ownership also means you could face potential capital gains taxes if the home is later sold for a profit. It’s essential to consult with a tax advisor to ensure compliance with tax laws and to understand the full financial impact of the arrangement.
