Helping a family member buy a home
Low inventory and higher rates can be challenging. Here’s how parents and grandparents can help.
For young adults looking to buy their first property or upgrade to a bigger home to accommodate a growing family, the purchase of a new home has become an increasingly difficult financial challenge. According to recent home sales data aggregated by Redfin:
- The percentage of U.S. home sales involving all-cash offers climbed to 33% in 2024 — one of the highest rates posted since the Great Recession.1
- Not surprisingly, the median age of home buyers has also steadily climbed over the same period, from age 39 in 2010 to age 56 today.1
Fortunately, parents often have more financial options at their disposal to help younger family members get established. It’s important, however, not to overextend or overreach — to balance your desire to help with making sure you retain more than enough wealth and liquidity to meet both short- and long-term needs.
“Most of my clients intend to leave money to their kids,” notes Merrill advisor Eddie Darragh. “But more and more are coming to the realization that they would much prefer to see family members benefitting from their wealth now rather than waiting until they’re gone and the estate is settled.”
Key takeaways
Having the means to help the next generation purchase a new home is a wonderful privilege. Just make sure, in your desire to support them financially, you don’t adversely impact your cash flow and liquidity to the point where short- and long-term needs go unmet:
- Tax-free gifts are the simplest solution, but may not provide enough cash for a down payment
- Alternatively, you might want to consider an intrafamily loan or cosigning on a conventional mortgage
- If making an all-cash offer is important, another possible option is taking a loan against your portfolio assets
- Enlist your Merrill advisor to help prepare the next generation for financial challenge
Financing strategies
While the simplest way to financially assist an adult child is by way of a gift, in 2025 tax-free gifts are limited to $19,000 annually ($38,000 per married couple), which may not provide enough cash for a down payment. Of course, you can gift more than this annual exclusion amount, but any excess will have to be reported on IRS Form 709 and will count against your lifetime estate and gift tax exemption. However, instead of liquidating some of your assets to fund a cash down payment (and potentially incurring gift taxes), you might want to consider alternative solutions such as intrafamily loans, co-signed mortgages or other ways to leverage your existing assets.
With intrafamily loans, you act as the banker for your child or grandchild — setting up an interest-bearing promissory note that charges a minimum interest rate set forth by the IRS (the Applicable Federal Rate). Benefits of this strategy include:
- Mandated interest rates that are usually well below the rates charged by traditional lenders
- A great deal of flexibility regarding repayment terms
- Can be set up for any duration
- Require no mandatory fees, credit checks or collateral requirements, but do require you to keep written documentation for the IRS
You could potentially help a child or grandchild qualify for a better mortgage rate or larger loan by co-signing or guaranteeing the mortgage — where you agree to the mortgage terms (and assume liability for the debt if they default) but owe nothing and own nothing by co-signing.
Alternatively, you could help them purchase or refinance up to 100% of their primary home’s value by pledging eligible Merrill securities through our Parent Power® program without co-signing for the mortgage. You may also utilize a Loan Management Account® (LMA® account) or a home equity line of credit (HELOC). These options let you help a family member with their home ownership goals without selling your portfolio assets.
“These programs can be especially useful given all the asset appreciation most clients are now holding in their portfolios,” points out Managing Director, Wealth Management Advisor Travis Musgrave. “Instead of selling assets and incurring capital gains taxes, an LMA account can make the process easier and more cost-effective. It can serve as a bridge loan that the child pays back over time or function more like a gift, where the parents use income generated by the portfolio to pay back the loan. LMA account interest rates may be lower than those available through other liability solutions, may have more attractive deductibility options and without all the hoops to jump through. Bottom line, there are many options our clients may consider to help their family purchase a home without disrupting their investment strategy. Our goal is to help families develop the right strategy for them.”
A technique that Private Wealth Advisors Michelle Mayer and Chelsea Botta leverage for many of their clients is using a portion of their lifetime gift and estate tax exemption (up to $13.99 million per individual as of 2025) to fund a trust in the name of the child; a trust specifically designed for the purpose of lending to cover critical expenses such as shelter and healthcare costs. The adult child then has this funding vehicle with a designated trustee to oversee any discretionary distributions.
“For clients with several children who want to help one of them purchase a home,” advises Musgrave, “we recommend including language in their estate documents which will allow inheritances to be leveled for any gifts or loans that benefit one of the children. We even maintain a spreadsheet that helps those clients keep track of individual disbursements.”
Other parents opt to balance immediate gifts to one child with future asset transfers to another. For example, they may gift $100,000 to one child for a down payment on a new home, and then, rather than sell assets and incur capital gains, identify $100,000 of portfolio assets that they set aside in a separate payable on death (POD) account for their other child. Given the performance of the market over time, the opportunity cost of using invested funds to pay off a low-rate mortgage may not be the best idea. You need to look at both sides of the balance sheet. This is what you’re paying on the debt you carry, and this is what you’re making on that borrowed money.
CASE STUDY: A QUICK CLOSE
We recently had a client call to inform us that his son needed to close on a new home purchase in the next 30 days or lose out on the property. The son’s bank, however, informed him it would take at least 60 days to close. By working with the client to secure an LMA account against their portfolio, they were able to lend their son the money to make an all-cash purchase. He then applied for a traditional mortgage and did a cash-out refinance to pay them back fully while obtaining a more favorable rate in the process.
Don’t just finance, educate
Make sure your children realize that your family’s net worth doesn’t factor into lender decisions about their creditworthiness. It’s their credit history that will determine whether or not they receive favorable terms when they borrow. A high credit score can open financial doors that even millions in assets won’t unlock. So, if they want to secure the lowest possible interest rate on their mortgage, encourage them to focus on their credit history and improving their credit score.
“Even if you add an adult child to your credit cards as an authorized user, that credit won’t be factored into mortgage approval decisions,” point out Mayer and Botta. “So, it’s tremendously important to help them establish individual credit and understand how critical it is to be attentive to consistently paying their monthly bills on time.”
You might even want to consider making any gifts or loans for a home purchase contingent on your son or daughter’s willingness to engage in conversations with your advisor on a range of topics, including budgeting and saving, debt reduction and building credit. Your advisor can help establish checking accounts and credit cards — ideally setting up any credit card accounts so they are auto-paid each month directly from their checking account to protect or increase their credit score.
“Younger adults have a tendency to overstretch beyond their comfort zone,” cautions Darragh. “We spend a lot of time educating the next generation on topics such as building credit, managing cash flow and debt, and saving for their children’s education as well as their own retirement.”
These educational efforts help young adults gain deeper insights into managing their wealth — so when the time comes for them to purchase a home, they’ll have a much better grasp of all the costs (mortgage, insurance, property taxes and upkeep) that go into financing and maintaining the property they wish to purchase.
Talk to your Merrill advisor
We all want to have the ability to help our adult children establish strong foundations for continued financial success. Just don’t make the mistake of adversely impacting your own future — or making your tax liability worse than needed — in the process. Working together, your Merrill advisor and Bank of America lending specialist, along with your tax attorney, can help you explore a range of gifting, lending and estate planning strategies to help the next generation purchase homes in a way that best aligns with both your current circumstances, your balance sheet and your future plans.
Whether you choose to pursue gifting cash or assets, leveraging your investment portfolio to borrow, selling assets outright or some combination of financing strategies, let us guide you through strategically leveraging the multitude of available home financing solutions to best position you and your children for the road ahead.
A private wealth advisor can help you get started.
1 “All-cash buyers are still snapping up homes. See where they’re buying.” The Washington Post, December 2024.
2 “Parents, Young Adult Children and the Transition to Adulthood” Pew Research, January 2024.
3 “2024 Profile of Home Buyers and Sellers.” National Association of Realtors, November 2024.
Please consult your tax advisor regarding interest deductibility.
Merrill Lynch, Pierce, Fenner & Smith Inc., does not make commitments for fund loans. Bank of America, N.A., (the “Bank”) does not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking or custody services or referrals to other affiliates of the Bank.
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