How Can Parents and Grandparents Help a Child Buy a Home? Gifts, Family Loans, and Other Strategies

Families can help a child buy a home in five main ways: an outright gift toward the down payment, a family loan or mortgage at the IRS minimum interest rate, a sale of a family home at a discount (a gift of equity), shared ownership, or redirecting an inheritance through a qualified disclaimer. Gifts up to $19,000 per giver per recipient in 2026 need no gift tax return, and larger gifts usually just use part of each giver's $15,000,000 lifetime exemption. A family mortgage can charge 5.52% for a 30-year loan made in November 2026, well below market rates near 7.1%. Each method affects the child's loan approval, the family's taxes, and fairness among siblings differently, so the choice depends on the family's goals as much as the numbers.

Why is family help so common now?

Affordability is the obstacle. The average 30-year fixed mortgage rate was 7.11% in the week of November 12, 2026, according to Freddie Mac, and the median existing-home price in October 2026 was $416,700, according to the National Association of Realtors. NAR's 2026 survey of buyers found that first-time buyers made up just 22% of purchases and that their median age had reached 40, matching the record. A quarter of first-time buyers used a gift or loan from family or friends for the down payment, and a record 10% used an inheritance.

Option 1: Give the down payment

The simplest help is a gift. In 2026, each person can give $19,000 to any number of recipients without filing a gift tax return. A married couple giving to a child and the child's spouse can therefore give $76,000 in a single year with no reporting, provided each spouse gives from his or her own or jointly owned funds; splitting gifts made from one spouse's funds requires a gift tax return. Larger gifts require a gift tax return but rarely any tax: the excess reduces the giver's $15,000,000 lifetime exemption, and tax is owed only after that exemption is used up.

Lenders have their own rules. Under Fannie Mae's guidelines, gifts must come from an acceptable donor, generally a relative or someone with a long-standing family-like relationship, and must be documented in a signed gift letter stating the amount, the donor's relationship, and that no repayment is expected. For a one-unit principal residence, the entire down payment can come from a gift. A gift letter must be true: if the family expects to be repaid, the money is a loan, and describing it as a gift to a lender is a misrepresentation.

Trade-offs.A gift is permanent and simple. It removes the money, and its future growth, from the parents' estate, and it gives the child the most borrowing power because there is no family debt for the lender to count. It also gives the parents no repayment and no security if the child's marriage ends; some families address that with a prenuptial or postnuptial agreement, or by giving only to their own child.

Option 2: Lend at the applicable federal rate

A family loan lets parents help without permanently parting with the money. The IRS requires only that the loan charge at least the applicable federal rate, which for November 2026 is 4.67% for loans of three years or less, 5.08% for loans of more than three and up to nine years, and 5.52% for longer loans. Those are annual-compounding rates; for a loan with monthly payments the equivalent long-term minimum is 5.39%, so charging 5.52% is comfortably compliant. A loan at or above that rate is not a gift, and the rate is fixed for the life of a term loan.

A family can provide the entire mortgage, replacing the bank, or a smaller loan alongside a bank mortgage. Three details determine whether it works.

Secure and record it.The child can deduct the interest as mortgage interest only if the loan is secured by the home under a mortgage or deed of trust that is recorded or otherwise perfected under state law, and only up to the $750,000 acquisition debt limit, which is now permanent. An unsecured note leaves the child with nondeductible personal interest.

Disclose it to any bank lender.An unsecured family loan generally cannot fund the down payment on a conventional mortgage, and a secured one is treated as subordinate financing that the bank counts when qualifying the child. Either way, it can never be presented as a gift.

Administer it like real debt.That means a signed note, a payment schedule, actual payments, and the parents reporting the interest as income. Parents can forgive payments using annual exclusion gifts, although forgiven interest is still taxable interest income to them, but a pattern of forgiving every payment as it comes due invites the IRS to treat the whole loan as a gift.

Option 3: Sell a family home at a discount

When parents sell their own home, or a second home, to a child for less than its fair market value, the difference is a gift of equity. Fannie Mae allows a gift of equity to serve as the down payment on a principal residence or second home, documented with a gift letter and the settlement statement. For gift tax purposes, the gift is the difference between the appraised value and the price, so a qualified appraisal matters. The child's basis is the greater of the price paid or the parents' adjusted basis, not a stepped-up value. The parents recognize gain only to the extent the price exceeds their full basis, subject to their own home sale exclusion if the home was their principal residence.

Option 4: Share ownership

Parents can buy a home with the child, or buy it and rent it to the child. Co-ownership lets parents share in appreciation but puts the parents' names on the title, which carries liability, and any share the child does not pay for is a gift. If parents own the home outright and rent it to the child, they should charge fair market rent; below-market rent to a family member makes those days personal use for tax purposes, which limits rental deductions to the rental income. Co-signing a child's mortgage, by contrast, gives the parents no ownership but makes them fully liable for the debt.

Option 5: Redirect an inheritance with a qualified disclaimer

Some families can help by declining an inheritance. If a grandparent's will, trust, or beneficiary designation leaves assets to a parent and names the parent's children as the next in line, the parent can refuse the inheritance with a qualified disclaimer, and the assets pass to the grandchild, typically as if the parent had died first, under the governing document or state law. Because the law treats the disclaimed property as never having belonged to the parent, the transfer is not a gift by the parent and uses none of the parent's exemption.

The rules are strict. The disclaimer must be in writing, irrevocable, and delivered within nine months of the death. The parent must not have accepted any of the property or its benefits. And the parent cannot direct where it goes: the assets pass only according to the will, trust, beneficiary form, or state law. The technique works only when those documents already name the right next taker, which makes it as much an estate planning point for grandparents as a post-death decision for parents. Because a disclaimer that passes assets to a grandchild is a direct skip from the grandparent, it uses the grandparent's generation-skipping transfer tax exemption or incurs that tax, which an estate attorney should review. Receiving and managing an inheritance is discussed further in what to do when you receive an inheritance.

What about retirement accounts and 529 plans?

A child buying a first home can withdraw up to $10,000, over a lifetime, from an IRA without the 10% early withdrawal penalty, although income tax still applies to pretax money and the funds must be used within 120 days. A parent under 59½ can use the same exception from the parent's own IRA for a child's first home. Roth IRA contributions, as distinct from earnings, can be withdrawn at any time without tax or penalty, and up to $10,000 of Roth earnings can also come out tax free for a first home once the account has been open five years. A 529 plan cannot pay for a home purchase; the earnings in a 529 withdrawal used that way are taxable and subject to a 10% penalty.

How do the options compare?

A worked example: gift plus family mortgage

The following is a hypothetical illustration using 2026 rules. A married couple wants to help their daughter and son-in-law buy a $500,000 home. The couple has ample liquidity and is comfortable holding a mortgage as part of their fixed income allocation.

They give $100,000 for the down payment in 2026. Of that, $76,000 is covered by annual exclusions, $19,000 from each parent to each of the two recipients. The remaining $24,000 is reported on gift tax returns and reduces the parents' lifetime exemptions, with no tax due.

They then lend the remaining $400,000 as a 30-year mortgage at 5.52%, the November 2026 long-term AFR, secured by the home and recorded. The monthly payment is about $2,276, compared with about $2,691 on a bank loan at 7.11%, a difference of about $415 a month. Over 30 years, the young couple pays about $149,000 less in interest. The parents receive about $21,900 of taxable interest income in the first year, declining as the loan amortizes, and the young couple can deduct the interest if they itemize. If the parents later want to give more, they can forgive part of each year's payments within their annual exclusions, documenting each forgiveness. The figures are hypothetical and simplified.

How should families keep things fair among children?

Help for one child often raises questions from the others. Families handle it in three common ways: matching gifts to each child at the same time, keeping a written record and equalizing through the estate plan, or treating loans, not gifts, as the default so every child receives the same terms. Whatever the approach, it belongs in writing, and the estate plan should say whether outstanding family loans are forgiven or deducted from a child's inheritance at death.

Frequently asked questions

How much can I give my child for a down payment without paying gift tax?In 2026, $19,000 per giver per recipient with no gift tax return; a married couple giving to a child and the child's spouse can give $76,000. Larger gifts require a gift tax return but usually no tax, because the excess counts against each giver's $15,000,000 lifetime exemption.

Can I lend my child money for a house at a low interest rate?Yes, if the loan charges at least the applicable federal rate. For November 2026 that is 5.52% for loans longer than nine years. The loan should be documented, secured, recorded, and repaid like real debt.

Can my child deduct interest on a family mortgage?Yes, if the loan is secured by the home under a recorded mortgage or deed of trust, the child itemizes, and total acquisition debt is within the $750,000 limit.

What is a gift of equity?A sale of a home to a family member for less than its fair market value. The discount is a gift for tax purposes and can be used as the buyer's down payment under Fannie Mae guidelines.

Can I disclaim an inheritance so it goes to my child?Yes, if the will, trust, or beneficiary designation names your child as the next taker. The disclaimer must be in writing, delivered within nine months, and made before you accept any benefit, and you cannot direct where the assets go.

Can a 529 plan be used to buy a house?No. Home purchases are not qualified 529 expenses, and the earnings portion of such a withdrawal is taxable and subject to a 10% penalty.

Sources

• Rev. Proc. 2025-32: Inflation adjustments for tax year 2026, Internal Revenue Service
• Rev. Rul. 2026-21: Applicable federal rates for November 2026, Internal Revenue Service
• 26 CFR § 1.163-10T: Qualified residence interest, Legal Information Institute, Cornell Law School
• 26 U.S. Code § 2518: Disclaimers, Legal Information Institute, Cornell Law School
• Selling Guide B3-4.3-04: Personal gifts, Fannie Mae
• Selling Guide B3-4.3-05: Gifts of equity, Fannie Mae
• Primary Mortgage Market Survey, Freddie Mac
• Existing-home sales, October 2026, National Association of Realtors
• 2026 Profile of Home Buyers and Sellers, National Association of Realtors