Even if You’re Not Cash-Rich, Your Home Equity Could Help Your Kid Buy a House

For parents, helping a child buy their first home used to be a question: Should you step in, or should they do it on their own? But after years of first-time buyers being priced out, a new consensus seems to be forming: If you can help, you probably should.

Nearly three-quarters of parents with children at home (74%) say they would consider or have already started financially planning to help their kids buy a home one day, according to a recent Northwestern Mutual survey.

For cash-rich parents, that help may come through “giving while living”—passing liquid assets to children now, rather than waiting for an inheritance later. 

The practice is already having a measurable effect on the housing market. In 2025, 22% of first-time buyers said they used a gift or loan from a friend or relative for their down payment, according to the National Association of Realtors®.

But not every parent has a large pile of cash to hand over. What many do have, however, is home equity. And that raises a more complicated question: Should parents use the value they’ve built up in their own home to help their child buy one of their own?

As Jacob Dayan, managing partner at Dayan Capital LLC, puts it, the decision has two parts: “First, how do you obtain the money, and second, how do you transfer the money?”

The main tools to tap equity for down payment help

Dayan says parents typically have three main ways to pull money from their home: a home equity loan, a home equity line of credit, or a cash-out refinance.

A home equity loan gives parents a lump sum of money, usually with a fixed interest rate and fixed monthly payment, which can make it easier to plan around if parents know exactly how much they want to give or lend.

A home equity line of credit (HELOC), meanwhile, works more like a revolving credit line. Parents can draw what they want and when they want it, which can make it more flexible for families who are not sure how much help the child will ultimately need.

A less popular option is the cash-out refinance, which allows parents to replace their existing mortgage with a larger one and pocket the difference in cash. But in today’s rate environment, it's likely to be the most expensive path, because parents may have to trade a lower mortgage rate for today’s higher rate on the entire loan—not just the amount they’re giving to their child.

Michael Merrill, a real estate agent in Florida, says he sees parents turning to these tools more than he used to.

“In higher-priced markets, family support is increasingly becoming part of the transaction conversation,” he says. “Using a HELOC or home equity loan for a down payment can help buyers become more competitive and enter the market sooner.”

And that can have a big impact on the long-term value of the investment. By empowering someone to purchase their first home before the age of 30, a parent can help maximize their child’s net worth at 50 by 22.5% or $119,000, according to recent research on generational wealth from Realtor.com®.

Homeownership can also create beneficial knock-on financial effects beyond appreciation alone. 

The forced savings of a monthly mortgage payment and the discipline of maintaining a major asset can help build financial habits that renting doesn't, which in turn compounds the net worth effect of homeownership. The most recent Survey of Consumer Finances estimates that homeowners have roughly 38 times the net worth of renters.

That makes the decision especially important for parents who see their home equity as a future inheritance. If that equity is eventually going to pass to a child anyway, using some of it earlier to help them buy a home could, in some cases, give that inheritance more time to grow.

But these options aren’t without risk.

“A big risk is the timing,” says Tim McGarry, a 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.”

That’s why the best option depends on which product gives parents the most manageable debt. While each offers its own advantages, all three have the same underlying trade-off: Parents are leveraging their own housing wealth for someone else.

And as parents weigh whether or not to tap into what is often their most valuable asset, they must also consider the best ways to protect it.

Gift or loan? How to transfer money the right way

Part of parents’ decision on how to protect their home equity is how to transfer funds once they tap them. Dayan says families generally have two options: a documented gift or a documented intrafamily loan.

A gift is often the simpler route, especially if the goal is to help a child with a down payment or closing costs without adding another monthly obligation. But larger gifts can come with tax-reporting considerations, so parents should speak with a tax adviser before moving money.

An intrafamily loan can make sense if parents want the child to repay them over time. But it should be treated like a real loan, with written terms, a repayment schedule, and an interest rate that satisfies IRS rules.

“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,” says Dayan. “Families should also make sure the child’s mortgage lender approves the structure, because an undisclosed loan can create underwriting issues.”

The worst version is an informal arrangement where everyone assumes they are on the same page, but nothing is written down. That can create problems with the child’s lender, confusion among siblings, and tension later if the child cannot repay the money as expected.

Regardless of the method, Dayan says parents should run the numbers as if repayment never happens.

“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,” he adds. “If the plan depends on the child refinancing, paying the parents back quickly, or the home appreciating, that is a red flag.”

The biggest risk: Putting parents’ own home on the line

The most important thing for parents to remember is that home equity is not the same as cash in a savings account.

“The biggest mistake is treating home equity like ‘free money.’ It is not free money. It is borrowed money secured by the parents’ home,” says Dayan. “If the child’s purchase does not work out, or if the parents’ income changes, the parents are still responsible for the debt.”

That’s why the decision has to start with the parents’ finances, not the child’s wish list. Before tapping into equity, parents should be clear on what they can afford to give or lend without compromising their own mortgage, retirement, emergency savings, or ability to absorb higher taxes, insurance, medical costs, or job loss.

McGarry says parents can get into trouble when they make an open-ended promise instead of setting a hard limit.

“They shouldn't get carried away in helping and helping the kid nonstop,” he explains. “First, they should be sure they can afford all their own expenses.”

His advice: Don't say, “We’ll help with the closing costs, mortgage, down payment.” Say, “We can give you $20,000,” set that money aside, and stop there.

Without that boundary, he says, families can start stretching beyond what the numbers actually support. Parents may take on a larger loan against their home because their finances look stable today, without knowing whether one spouse might lose a job, retire sooner than expected, or face higher costs down the line.

The child’s finances matter, too. If the child cannot afford the home without ongoing parental support, the family may not be solving the affordability problem so much as moving the risk onto the parents’ balance sheet.

“It only works when parents are protecting their own long-term financial stability,” says Merrill. “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 the ones with clear limits, written expectations, and room for things to go wrong. As Merrill puts it, the strongest situations are approached “as part of a long-term family wealth strategy, not an emotional reaction to today’s market.”