Buying your first home can be tough. High property prices, large down payments, and strict lender requirements are just some of the hurdles many first-time buyers face. To tackle these challenges, more people are turning to their families for help. Whether it’s financial support or co-signing a loan, family assistance can make a big difference.
If you’re thinking about how your family can help, we’ve broken it down into clear methods, key considerations, and practical tips to help make the process easier.
Ways Family Can Help
1. Gifts of Money
Giving money is one of the easiest and most direct ways for family members to help. This financial support can go toward a down payment, closing costs, or even paying off debts to improve your borrowing ability.
How It Works:
A family member gives you a lump sum of money to use for your down payment, closing costs, or both. While gifting money is simple, it comes with specific rules from lenders and potential tax considerations. Most lenders require a gift letter to confirm the money is a gift, not a loan, and that no repayment is expected.
Key Guidelines:
- Source of Funds: Lenders usually need proof that the gift is legitimate, which may include bank statements or other documentation from the donor.
- Documentation: The gift letter must include the donor’s relationship to you, the gift amount, and how the funds will be used.
- Gift Tax Rules: In 2025, individuals in the U.S. can give up to $19,000 per person without affecting their lifetime gift tax exemption. If the gift is larger, the donor might need to report it to the IRS. It’s a good idea to consult a tax advisor to avoid any surprises.
2. Co-Signing or Co-Borrowing
Family members can help by co-signing or co-borrowing on a mortgage. If you’re having trouble meeting lending requirements due to low income or a short credit history, a family member with a strong credit score can make a big difference.
What’s the Difference?
- Co-Signing: The family member guarantees the mortgage but doesn’t have ownership of the property. However, they’re financially responsible if you miss payments.
- Co-Borrowing: The family member is a co-owner of the property and shares equal responsibility for mortgage payments and ownership.
Things to Keep in Mind:
- Responsibilities and Risks: Both co-signers and co-borrowers are responsible for missed payments, which can harm their credit score. This is a serious financial commitment that requires careful thought.
- Clear Communication: Before moving forward, discuss who will handle payments and how ownership will work, especially when it’s time to sell the property.
3. Intra-Family Loans
Some families choose to provide an intrafamily loan instead of going through a bank for a mortgage. These loans work like bank loans, with clear repayment terms and interest rates.
What to Keep in Mind:
- Formalize Agreements: Even if it’s a family loan, it’s crucial to have a written contract that outlines the repayment schedule, loan amount, and interest rate. This keeps things clear and avoids misunderstandings.
- IRS Rules: The IRS requires that intrafamily loans charge at least a minimum interest rate to avoid being labeled a gift. These rates change every quarter, so stay updated.
- “Below Market” Loans: Offering very low or no interest could be considered a gift, which may have tax consequences. Consult with a tax advisor to avoid unexpected issues.
- Exit Plan: Have a plan in case things change, like selling the home or refinancing with a bank later.
4. Co-Ownership
If your family member is interested in being more involved or sees the investment potential, they could co-buy the property with you. In this setup, both parties own a percentage of the home and share responsibilities like mortgage payments and maintenance.
Benefits of Co-Ownership:
- Offers financial and practical support.
- Makes it possible to afford a larger or more desirable property.
Potential Drawbacks:
- Can make decision-making and future plans, like selling the home, more complicated.
- Requires legal agreements to clearly define ownership shares, roles, and responsibilities.
To avoid issues down the line, it’s a good idea to create a co-ownership agreement with clear terms.
Alternatives to Direct Financial Assistance
If financial gifts, loans, or co-ownership aren’t the right fit, here are two other ways family can help with your homebuying goals:
1. Rent-to-Own Agreements
A family member buys the property and rents it to you with the option to purchase it later. This gives you time to save for a down payment or improve your credit.
2. Temporary Financial Help
Family can cover specific costs like appraisal or inspection fees, or even help with moving expenses. This short-term support eases financial pressure without long-term commitments.
Communicating Expectations
Clear communication is key when money is involved—it helps maintain healthy family relationships and avoid misunderstandings. Unmet expectations can cause tension, so it’s important to talk about everyone’s intentions and responsibilities before offering financial help.
Tips for Clear Communication
- Set Clear Goals: Agree on why the financial help is needed, whether it’s for buying a home or managing short-term financial struggles.
- Put It in Writing: Even with family, having a written agreement clarifies the terms and prevents future conflicts.
- Seek Professional Advice: Consult financial advisors, tax experts, or attorneys to protect everyone’s interests and avoid issues down the line.
Building a Foundation for Your Future
For first-time buyers, family support can play a key role in achieving homeownership. Whether it’s through a financial gift, sharing loan responsibilities, or other methods, support from loved ones can help you reach your goal faster.
If you’re exploring how family assistance can work when buying a home, it’s a good idea to speak with financial or real estate professionals. They can guide you through the process and help you avoid common mistakes.
Ready to take the first step toward owning your home? We invite you to visit us online at SummerHillHomes.com to view our new home communities, available homes, virtual tours, and more.