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Should You Help Your Kids Pay for Their Mortgage

By
Real Estate Agent with eXp Realty 40241196

Whether or not to help your kids pay for their mortgage is a personal decision that depends on your financial situation, your relationship with your children, and your beliefs about financial independence.

It's important to evaluate your own financial situation before deciding whether to help your kids pay for their mortgage. Make sure that you can afford to provide financial assistance without jeopardizing your own financial security. Your relationship with your children can also be a factor in your decision. If you have a close relationship with your children and want to help them achieve their financial goals, then providing financial assistance may be a good option.

Some parents believe that their children should be financially independent and not rely on them for financial support. If you hold this belief, you may not want to provide financial assistance to your children. If you do decide to help your kids pay for their mortgage, it's important to set clear terms and boundaries. Will you provide a loan that needs to be repaid or a gift? How much will you provide? Will you be a co-signer on the mortgage?

When Parents Might Want to Help with a Child's Mortgage

Below are a few situations where parents might want to consider helping their child with their mortgage:

  • First-time homebuyers: If your child is a first-time homebuyer, they may not have enough savings or credit history to qualify for a mortgage on their own. In this case, you might want to consider providing a loan or gift to help them with their down payment or closing costs.
  • Financial difficulties: If your child is experiencing financial difficulties, such as a job loss or unexpected expenses, they may struggle to make their mortgage payments. Providing financial assistance in these situations can help them avoid foreclosure and maintain their financial stability.
  • Inheritance: Some parents choose to leave an inheritance to their children that can be used towards a down payment on a home. This can be a way to help their children achieve financial independence and build wealth.
  • Family home: If your child wants to buy the family home, you may want to consider providing financial assistance to help them keep the property in the family.

Tax Repercussions

There may be tax repercussions when parents help their children with their mortgage. Here are some things to consider:

Gift tax: If you give your child more than the annual gift tax exclusion amount, you may be subject to gift tax.

Income tax: If you lend money to your child to help with their mortgage and charge them interest, you will need to report the interest income on your tax return. Your child may also be able to deduct the mortgage interest on their tax return.

Capital gains tax: If you gift your child a property that will appreciate in value, they may be subject to capital gains tax when they sell the property. However, if they inherit the property from you, they will receive a step-up in basis, which means they will only pay capital gains tax on the appreciation that occurs after they inherit the property.

The decision of whether to help your kids pay for their mortgage is a personal one that should be made after careful consideration of all the factors involved.

In any of these situations, it's important to consider your own financial situation and to fully understand the tax implications of helping your child with their mortgage and set clear terms and boundaries for the financial assistance you provide.

Comments (7)

Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Hello Bob... our kids were put through college and graduate school without a penny of debt. Their weddings were paid for. We don't underwrite their mortgages. They were put on their feet and now have to make a go of it on their own. We, did however, contribute $1,000 annually to each grandchild's college fund.

May 12, 2023 10:42 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Bob C

May 12, 2023 04:33 PM
Kimo Jarrett
Cyber Properties - Huntington Beach, CA
Pro Lifestyle Solutions

The time to have financial independence lessons is when the child can comprehend the value of money and how to earn it, keep it and save it for important purchases. Do that for your children as a learning lesson at every opportunity as a loving, responsible parent. Children go to school but aren't taught anything about money, finances or the value of money, so, it's up to the parents to teach their children what the schools fail to teach. As they mature, they will have saved if owning a home or real estate is in their future.  I agree wholeheartedly with Nina Hollander on this issue.

May 13, 2023 12:35 PM
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

Tricky question!  I'm not all for giving your kids everything anytime they want it.  And I see so many parents doing that.  I had a buyer one time who was actually the girl's father--he found the house for her, paid cash, got it furnished and she just moved in .  He said she "didn't have time" for any of those details as she was "going to med school".    Important for kids to have some kind of job as soon as they can while going to school--teaches them so much.  

May 13, 2023 01:17 PM
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

i taught my children from little on to be responsible for their actions, and to make wise decisions with their allowance, savings and today they are all doing well.  I think your post has valuable information and for each person individually there are times when this is good to know.  Thank you for sharing.

May 19, 2023 10:38 AM
Kristin Johnston - REALTOR®
RE/MAX Platinum - Waukesha, WI
Giving Back With Each Home Sold!

Great post!  Thanks for sharing and enjoy your day!

May 22, 2023 07:14 AM
Patricia Kennedy
RLAH@properties - Washington, DC
Home in the Capital

Bob, I've seen a lot of chaos caused by parents "giving" the family home to children when they downsize, only to have the kids get a shock when the find out what it will cost in capital gains taxes to sell the place. Interesting post.

Apr 10, 2024 08:20 AM