When it came to assisting a child in purchasing their first home, parents used to wonder if they should do it themselves or if you should intervene. However, a new consensus appears to be emerging after years of pricing out first-time buyers: If you can help, you probably should.
According to a recent Northwestern Mutual survey, over three-quarters of parents with children at home (74%) said they would consider or have already begun financial planning to assist their kids buy a home one day.
“Giving while living”—transferring liquid assets to children now rather than waiting for an inheritance later—is an emerging trend and may be one way wealthy parents can provide that assistance.
The home market is already being affected in a quantifiable way by the practice. According to the National Association of Realtors (NAR), some 22% of first-time buyers reported using a loan or gift from a friend or relative for their down payment in 2025. However, not all parents have a sizable sum of money to provide. However, home equity is something that many do own.
And that brings up a more nuanced question: Should parents assist their child in purchasing a property of their own using the assets they have accumulated in their own?
Experts Weigh In with Tools That Can Assist
“First, how do you obtain the money, and second, how do you transfer the money” is how Jacob Dayan, Managing Partner Dayan at Capital LLC, describes the decision’s two components.
A home equity loan, a home equity line of credit, or a cash-out refinance are the three major ways that parents can take money out of their house, according to Dayan. If parents know exactly how much they want to give or lend, a home equity loan, which often has a fixed interest rate and monthly payment, might make planning easier. In contrast, a home equity line of credit (HELOC) functions more like a revolving credit line. It can be more adaptable for families that are unsure of how much assistance the child will ultimately require because parents can draw what they want and when they want it.
The cash-out refinance, which enables parents to swap out their current mortgage for a larger one and keep the difference in cash, is a less common choice. However, in the current rate environment, it’s probably the most costly option because parents might have to exchange a lower mortgage rate for the higher rate on the entire loan, not just the amount they’re providing to their child. Florida real estate agent Michael Merrill claims that parents are using these tools more frequently than he did in the past.
“In higher-priced markets, family support is increasingly becoming part of the transaction conversation,” said Merrill. “Using a HELOC or home equity loan for a down payment can help buyers become more competitive and enter the market sooner.”
And that could significantly affect the investment’s long-term worth. According to a new study on generational wealth from Realtor.com, a parent can increase their child’s net worth at age 50 by 22.5%, or $119,000, by enabling them to buy their first property before turning 30. Beyond just value, homeownership can have positive knock-on financial implications.
The net worth effect of homeownership is compounded by the discipline of maintaining a significant asset and the forced savings of a monthly mortgage payment, which can assist develop financial habits that renting does not. According to the most current Survey of Consumer Finances, homeowners’ net worth is around 38 times that of renters.
For parents who view their home equity as a future bequest, this makes the choice more crucial. In certain situations, spending a portion of that equity early to assist a child in purchasing a home could allow the inheritance more time to grow if it will eventually pass to a child anyhow. However, there is some danger associated with these choices.
“A big risk is the timing,” said Tim McGarry, Loan Officer at PrimeLending. “I’ve seen parents pull equity out when the rates felt manageable, and then a year later, the HELOC payment rose or the premiums and taxes go up, so now they have a way higher debt than what they planned.”
Because of this, the best choice is determined by which package offers parents the most manageable debt. All three share the same fundamental trade-off, even if each has advantages of its own: parents are spending their own capital in housing to benefit someone else. Additionally, parents must think about the best methods to safeguard what is frequently their most valuable asset while they decide whether or not to use it.
Loans vs. Gifts: Navigating Parental Assistance
When it comes to safeguarding their home equity, parents must decide how to move cash when they are tapped. According to Dayan, families often have two choices: a documented intrafamily loan or a documented gift.
Giving a gift is frequently the easier option, particularly if the intention is to assist a child with closing expenses or a down payment without adding another monthly commitment. However, parents should consult a tax advisor before transferring funds because larger gifts may have tax-reporting implications.
If parents want the child to pay them back over time, an intrafamily loan may make sense. However, it should include written terms, a repayment plan, and an interest rate that complies with IRS regulations, just like a real loan.
“The cleanest structure is often a documented gift or a documented intrafamily loan, funded by a modest home equity loan or HELOC, with the parents’ financial adviser and tax adviser involved before the money moves,” Dayan said. “Families should also make sure the child’s mortgage lender approves the structure, because an undisclosed loan can create underwriting issues.”
An informal arrangement where everyone believes they are in agreement but nothing is documented is the worst kind. If the youngster is unable to repay the money on time, it may lead to issues with the child’s lender, uncertainty among siblings, and conflict down the road. Dayan advises parents to run the calculations as if repayment never occurs, regardless of the approach.
“My general rule of thumb is that parents should only use home equity to help a child if they could comfortably make the new payment even if the child never repaid them,” Dayan said. “If the plan depends on the child refinancing, paying the parents back quickly, or the home appreciating, that is a red flag.”
Money on the Line: Parents Face Risks
The most crucial thing for parents to keep in mind is that cash in a savings account is not the same as home equity.
“The biggest mistake is treating home equity like ‘free money.’ It is not free money. It is borrowed money secured by the parents’ home,” Dayan said. “If the child’s purchase does not work out, or if the parents’ income changes, the parents are still responsible for the debt.”
Because of this, the parents’ financial situation must come first rather than the child’s wish list. Before using equity, parents should know how much they can lend or gift without jeopardizing their own mortgage, retirement, emergency funds, or capacity to pay for increased taxes, insurance, medical expenses, or job loss. According to McGarry, parents who make an open-ended pledge rather than establishing a strict boundary may find themselves in hot water.
“They shouldn’t get carried away in helping and helping the kid nonstop,” McGarry. “First, they should be sure they can afford all their own expenses.”
Don’t offer, “We’ll help with the closing costs, mortgage, down payment,” he suggested. Say, “We can give you $20,000,” put that sum away, and don’t do anything else.
He claims that in the absence of that limit, families may begin to go beyond what the statistics genuinely justify. Because their finances appear steady now, parents may take out a larger loan against their house without knowing if one partner may lose their job, retire earlier than anticipated, or incur greater expenses in the future. The child’s financial situation is also important. The family may be shifting the risk onto the parents’ balance sheet rather than fixing the affordability issue if the youngster cannot finance the house without continuous parental support.
“It only works when parents are protecting their own long-term financial stability,” Merrill said. “I always tell families that helping a child buy a home should not come at the expense of their retirement or housing security.”
The safest arrangements are those that have explicit boundaries, documented expectations, and space for failure. The best circumstances are handled “as part of a long-term family wealth strategy, not an emotional reaction to today’s market,” according to Merrill.
Overall, parental assistance can significantly help first-time buyers achieve the American Dream, however; for those who do not have that option, it doesn’t mean purchasing a property is forever out of reach.
