Parent Support for Home Buying Requires Strategy and Caution, Experts say

With homeownership becoming increasingly out of reach for first-time buyers, more parents are stepping in to help their children secure a home. But experts say such support requires careful planning due to tax, legal, and financial implications.

According to the National Association of Realtors (NAR), first-time buyers made up just 24% of all home purchases last year, the lowest share on record. The decline is largely attributed to soaring home prices and burdens such as student debt, which make it harder for younger generations to buy a home.

In this context, parental assistance can make a significant difference. However, experts warn that parents need a clear strategy when offering support, especially when large sums of money or property are involved.

Three Common Approaches to Home Support

There are three common ways parents help children buy homes.

The first is by gifting part or all of the down payment. In 2024, the annual gift tax exclusion allows individuals to give up to $19,000 tax-free. For couples, the limit doubles to $38,000. To qualify as a gift, proper documentation must be filed, including a formal letter and evidence of the money’s origin such as bank statements.

The second option is for parents to purchase a home in their own name and rent it to their child. This may be viable if the child does not yet qualify for a mortgage. In this scenario, parents can only claim tax deductions for mortgage interest or property-related expenses if they report rental income. If the child lives rent-free, these deductions are not allowed.

The third approach involves joint ownership, with both parent and child listed on the title. This structure requires a clear agreement on ownership shares, which determines how sale proceeds will be divided later. The downside is that parents remain liable if the child cannot meet mortgage payments. In addition, only some lenders offer mortgages for joint ownership between parents and children.

Experts emphasize the importance of setting financial boundaries early. Decisions like how involved parents will be in choosing a home or negotiating contracts should be made in advance to prevent misunderstandings.

Parents should also assess whether the child has enough income to cover ongoing homeownership costs such as property taxes, maintenance, and HOA fees. Simply helping with the mortgage may not be enough for sustainable homeownership.

Protecting Retirement Comes First

Financial advisors strongly caution against compromising one’s retirement to support a child’s home purchase. Withdrawing retirement savings early may trigger a 10% penalty, income taxes, and a loss of compound interest.

Experts agree that parents must prioritize their own financial security and avoid overextending themselves, even with the best of intentions.

BY HOONSIK WOO [woo.hoonsik@koreadaily.com]