Loaning Money to Your Child for a House Down Payment

What parents need to know about lending money for real estate purchases.

Loaning Money to Your Child for a House Down Payment

What parents need to know about lending money for real estate purchases.

Your adult child wants to buy a house but needs help with the down payment. Before transferring money, coordinate with the actual mortgage lender and qualified tax or legal professionals. A gift and a repayable family loan are not interchangeable.

Gift vs. Loan: Mortgage Implications

Mortgage lenders care about where down payment money comes from.

If it is a gift: The mortgage program may require a signed gift letter stating that repayment is not expected and documentation showing the source and transfer of funds. For example, the current Fannie Mae Selling Guide has specific donor, letter, and transfer-documentation rules for loans it covers.

If it is a loan: Tell the mortgage lender. Borrowed funds and the related repayment obligation may affect underwriting and cannot be presented as a gift.

Talk to your child's mortgage lender before deciding.

If It Is a Loan

Structure It Properly

Do not rely on a blanket “over $10,000” rule. IRS Publication 550 explains that below-market-loan treatment depends on whether a loan is a gift, demand, or term loan and that exceptions are limited. The IRS publishes Applicable Federal Rates each month. Ask a qualified tax professional how those rules apply to the actual structure.

Put It in Writing

Include: - Loan amount - Interest rate (if any) - Repayment terms - What happens if they sell the house

Consider Timing

Mortgage programs and lenders have specific rules for documenting deposits, liabilities, gifts, and transfers. Ask the lender what documents it needs before moving the funds; do not try to make a repayable loan appear to be seasoned gift funds.

If It Is a Gift

The Gift Tax Exclusion

The IRS says the annual exclusion is $19,000 per recipient for gifts made in 2025 or 2026. Each spouse has a separate annual exclusion, but gift splitting and jointly owned property can create filing requirements.

A gift above the applicable exclusion generally can require Form 709 even when no current tax is due, but exclusions, deductions, ownership, future interests, gift splitting, and earlier gifts affect the result. Review the current IRS gift-tax FAQ and Form 709 instructions with a tax professional.

Gift Letter Requirements

For programs that accept gift funds, the required gift letter commonly identifies: - The amount - The relationship - That no repayment is expected

Use the mortgage lender's required form and instructions rather than a generic internet template.

Protecting Yourself

Do Not Jeopardize Your Retirement

Only give or lend what you can afford to lose. Your child has decades to recover financially. You may not.

Consider a Promissory Note

For large loans, a formal promissory note creates a clear record and can help if there are ever disputes.

Sources

- Fannie Mae Selling Guide — Personal Gifts - IRS Publication 550 — Below-Market Loans - IRS Applicable Federal Rates - IRS Gift Tax FAQs - IRS Instructions for Form 709

Address Multiple Children

If you have other children, consider how this affects them. Some parents deduct loans from inheritance shares.

Track Everything

Whether gift or loan, keep records: - Transfer receipts - Written agreements - Payment history (if a loan)

JimBondy can help track repayments if you structure it as a loan. Both you and your child see the same record.

Helping your child buy a home is wonderful. Just do it with clear terms and documentation.

Verified sources reviewed August 14, 2026: CFPB tips and worksheet for managing family lending and borrowing (https://www.consumerfinance.gov/consumer-tools/educator-tools/adult-financial-education/tips-for-managing-family-lending-and-borrowing/), IRS Publication 550 (https://www.irs.gov/publications/p550), and FTC debt-collection guidance (https://consumer.ftc.gov/articles/debt-collection-faqs). Source relevance varies by article; JimBondy does not provide legal, tax, lending, or collection advice.