United States · 7 min read · Laddered Editorial · 8 Jul 2026
Down Payment Help From Family: Gift, Loan, or Co-Own?
Family help with a down payment comes in three forms — a gift, a loan, or actually co-owning — and the IRS, your lender and your relatives treat each of them very differently. How to pick the right one.
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This article is general information only and is not legal, financial, tax, or property advice. Consider advice from a qualified professional for your circumstances.
Three ways family money shows up
When family helps you buy a home, the money almost always arrives as one of three things — and people get into trouble mainly by blurring them. It's either a gift (handed over, nothing owed back), a loan (lent, to be repaid), or an equity share (they go on the title and genuinely co-own). Gifted down payments are everywhere: most conventional and FHA loans let the entire down payment be a gift from a relative. But "my parents are helping" hides three very different deals, each with its own consequences.
The gift
The cleanest and most common route, with two sides to get right — the tax side and the lender side.
On tax, the numbers are more generous than people fear. In 2026 you can give up to $19,000 per recipient ($38,000 for a married couple splitting the gift) without filing anything or touching your lifetime gift-tax exemption, which is $15 million per person in 2026. Parents can stack it: gifting to a married child and their spouse, two parents can move up to $76,000 in a single year, exclusion-free. Go above the annual limit and you file a gift-tax return — but you still owe no actual tax until you blow past that multimillion-dollar lifetime figure, which almost no family does. And the recipient never owes gift tax at all; that's always the giver's concern.
On the lender side, conventional loans generally require the donor to be a relative (a spouse, domestic partner or fiancé also qualifies); FHA is more permissive about who can give. Either way the lender wants a gift letter — a short signed statement that the money is a true gift with no repayment expected — and, increasingly, a paper trail: the donor's bank statement showing the funds, and a record of the transfer into your account. Move the money early if you can, so underwriting isn't chasing its source days before closing. And here's the part that bites: if it's secretly a loan you've quietly agreed to repay, and you sign a gift letter saying otherwise, that's mortgage fraud — it can sink your approval or worse. Don't dress a loan up as a gift.
The family loan
Sometimes the parents want their money back. A documented family loan keeps the money as their asset and gives them protection a gift can't — but it comes with two catches.
First, lenders count it as debt. A loan your parents expect repaid raises your debt-to-income ratio and can lower how much you qualify to borrow — the exact opposite of what a gift does. Second, the IRS expects interest: lend below the Applicable Federal Rate (the minimum rate it publishes each month) and it can impute interest, treating your parents as if they'd charged it. The bark is usually worse than the bite, though — for gift loans of $100,000 or less, the imputed amount is capped at the borrower's net investment income, which for a typical homebuyer is little or nothing. Setting a modest rate at or above the AFR still keeps it clean and beyond argument.
Put it in a written promissory note: amount, interest rate, and a repayment schedule. The handshake version — "pay us back when you can" — is the one that turns a family Thanksgiving frosty three years later.
Buying in together
Here the parents don't gift or lend — they buy in. They go on the title (and often the loan) for a share that matches what they put in. It protects their contribution best, because their stake sits on the deed rather than resting on goodwill. But it makes the whole thing genuine co-ownership: they're liable for the mortgage, their share can face capital gains tax when the home sells (the Section 121 residence exclusion won't apply unless they actually live there — more on co-owner taxes here), and it needs a real co-ownership agreement. The shares should track what each person put in — here's how unequal contributions map to ownership — and you can model the split here.
Of the three it protects the parents best, and it also asks the most of everyone. It suits larger contributions and families who want something durable and genuinely shared, rather than a favor that slowly goes fuzzy.
So which one?
Mostly it's protection versus hassle. If the parents can comfortably part with the money and it won't touch their own retirement, a gift is the clean, obvious route. The moment they want it back, you're into loan territory — with the trade-off that it dents your borrowing power. And once the sum is big enough that handing it over unprotected would be reckless, going on the title as a co-owner starts to earn its paperwork, as long as everyone genuinely wants to co-own rather than just help.
Whatever you land on, get it on paper — a gift letter, a promissory note, or a co-ownership agreement and a deed. "We'll figure it out later" has a way of resurfacing at a sale, a breakup or a funeral, which is the worst possible moment to work out what everyone meant. For the co-owning path, Laddered keeps each person's contribution and the shares you agreed in one place, so a family arrangement stays clear long after the goodwill that started it.
Common questions
Should you buy a house with your parents? It can be a smart move — it lifts your borrowing power and gets you in sooner — but only if you treat it as real co-ownership: agree the shares, put both the ownership and the exit in a co-ownership agreement, and remember you're each liable for the whole loan. On a handshake, it's how families stop talking.
How much money can family gift for a down payment? There's no lender cap on the size of a gift — conventional and FHA loans generally allow the entire down payment to be gifted by a relative. The 2026 gift-tax annual exclusion is $19,000 per recipient ($38,000 from a couple) before the giver has to file a gift-tax return, though no tax is actually owed until the multimillion-dollar lifetime exemption is used up.
Is gift money for a down payment taxable? Not to you, the recipient — you never pay gift tax. The giver may need to file a return for gifts above the annual exclusion, but owes no tax until they exceed the lifetime exemption.
Can my parents lend me the down payment instead? Yes, but lenders treat it as debt (raising your DTI and lowering what you can borrow), and the IRS expects interest at or above the Applicable Federal Rate. Document it as a promissory note.
Is it mortgage fraud to call a loan a gift? Yes. If you've agreed to repay the money but sign a gift letter saying you haven't, that's misrepresenting your finances to the lender — with real consequences if it's discovered.
This is general information, not legal, tax or financial advice. Gift-tax figures, lender rules and the AFR change, and a large gift can touch a parent's own tax and estate planning — a short session with a CPA (and a real-estate attorney for the co-owning path) is cheap insurance before the money moves.