How to Help Your Adult Children Buy a Home

Learn the right ways to help your adult children buy a home so you minimize any implications on your own financial goals and estate planning. As parents, we want the best for our children, and one significant milestone in their lives is purchasing their first home. However, rising property prices and challenging financial circumstances can make it difficult to enter the real estate market. There are various ways parents can support their adult children in purchasing homes, while also safeguarding your own assets and minimizing tax implications. It’s important to consider how your help will impact your children as well. Thinking about the best ways to provide financial support, and especially consulting with a professional, will help make the process seamless for everyone involved.

How to Help Your Adult Children Buy a Home 

1. Start Planning Early: How to help your adult children buy a home isn’t as easy and just giving them money. Encouraging your adult children to start planning for homeownership early is crucial. Teach them about financial responsibility, saving, and budgeting. Discuss the benefits of homeownership, including building equity and stability. By setting clear goals and educating them about the process, you can empower them to make informed decisions and take proactive steps towards purchasing a home. Planning early also helps you to assess if you are able and wanting to help them financially with their purchase. Having a plan will help you to minimize the impact on your own assets that a large financial gift may make.
2. Providing Financial Assistance: Assisting your adult children financially with their first home purchase is a dream to some. When the time comes and you are able to help them with their purchase, it’s important to have a plan as to how you are getting the money to them. Plan for the best way that reduces fees and taxes, so no one is burdened on their end at the end of the deal. If you are gifting them money for a down payment, talk to a professional about the best route for everyone. If you are offering a loan, it’s essential to establish clear expectations and formalize the arrangement through legal documentation while making sure your terms are legal. Also ensure you are not disqualifying them from any terms that are set with their mortgage company. Discussing the repayment plan and potential interest rates will help maintain transparency and avoid conflicts in the future.
3. Gift within the annual exclusion limit: The annual gift tax exclusion allows you to gift a certain amount of money to each recipient each year without incurring any gift tax. As of 2023, the annual exclusion limit is $17,000 per person. Both you and your spouse can gift this amount separately, meaning you can jointly gift up to $34,000 per year to your child without triggering any gift tax. Gifting within this limit will not result in any tax consequences for either party.
4. Utilize the lifetime gift tax exemption: In addition to the annual exclusion, each individual has a lifetime gift tax exemption, which allows you to give larger amounts over your lifetime without immediate tax consequences. As of 2023, the lifetime gift tax exemption is $11.7 million per individual. By using this exemption strategically, you can provide a more substantial amount towards your child’s home purchase without triggering gift taxes. However, it’s crucial to consult with a tax professional or estate planning attorney to understand the long-term implications and potential estate tax considerations.
5. Co-Signing or Guaranteeing Loans: If your adult children are unable to qualify for a mortgage on their own due to a lack of credit history or insufficient income, you can consider co-signing the loan or guaranteeing it. By adding your name to the mortgage application, you essentially vouch for their ability to repay the loan. However, it’s crucial to understand the risks involved, as you will be equally responsible for the debt if your children fail to make payments.
6. Exploring Government Programs and Incentives: Research various government programs and incentives designed to help first-time homebuyers. These programs may include low-interest loans, down payment assistance, or tax credits. Understanding the eligibility criteria and application process can help you guide your adult children towards these opportunities, reducing their financial burden and making homeownership more attainable. By leveraging these resources, your child can benefit from external support while you maintain your financial independence and retirement savings.
7. Acting as a Real Estate Resource: Your experience and knowledge in the real estate market can be invaluable to your adult children. Offer guidance throughout the homebuying process, from selecting a real estate agent to negotiating the purchase price. Help them evaluate different neighborhoods, understand market trends, and identify the best investment opportunities. By acting as a resource and sounding board, you can ensure your children make well-informed decisions.
8. Encouraging Wise Financial Choices: Purchasing a home involves a significant financial commitment. Encourage your adult children to make wise financial choices by advising them to prioritize their needs over wants. Teach them about the importance of a good credit score, responsible debt management, and the impact of interest rates on mortgage payments. In addition to providing financial assistance, emphasize the importance of responsible financial planning to your child. Educate them about budgeting, saving, and building credit. By promoting financial literacy and smart decision-making, you empower them to take control of their financial future.

Assisting adult children in purchasing homes is a generous and supportive gesture that can have a lasting impact on their lives. By starting the planning process early, and offering guidance throughout the journey, parents can play a crucial role in making homeownership a reality. The goal is not to take away their independence but to provide a helping hand as they embark on this exciting milestone. Remember, it’s crucial to consult with a qualified tax professional, financial advisor, and estate planning attorney, who can provide personalized guidance based on your specific financial situation and goals. They can help you navigate the complexities of tax laws and retirement planning while ensuring your child receives the necessary support in purchasing a home.

Are you looking to help your adult children with home purchases? If you’re in Illinois or Wisconsin, contact us and let us help you to plan for the future with the right estate plan that supports your goals. Estate planning doesn’t need to be complicated, we’re here to help.