Helping the Next Generation Buy a Home: How Parents Can Make Homeownership Possible

More families are helping adult children buy their first home than ever before. Learn how gifts, equity, and thoughtful financial planning can help the next generation achieve homeownership while protecting parents' long-term goals. 

Transcript

SPEAKER_00 0:00

Welcome back to the Idaho Life Show. Shelby Matson here with Garrett Thill. Before the break, we put the number on the table. Medium first-time buyer in America is 40 years old. All-time high, right, Garrett?

SPEAKER_01 0:12

It's all-time high. It's scary.

SPEAKER_00 0:13

It is scary. Now I want to flip to the parent side of that equation because there is a stat in the same NAR report that connects directly to what we are seeing here in the Valley.

SPEAKER_01 0:24

Yeah. And that NAR is a national association of realtors and they always put out these reports every year. That's right. So nearly a quarter of all first-time buyers in 2025, so that's one in four, they used a gift or a loan from a family member to fund that down payment, which I think a lot of people don't realize that. They assume that they're saving up their own money, but it's it's hard. Times are definitely tougher. And the the median down payment for a first-time buyer hit 10% nationally last year. And it's that's the highest it's been since 1989.

SPEAKER_00 0:54

Yeah, the median down payment at a 36-year high, that is not buyers being more disciplined savers. That is families putting capital into these transactions to get the kids in the door.

SPEAKER_01 1:06

That's right. And in a market where prices and rates are where they're at, you know, a three or three and a half percent down payment, it doesn't always get a first-time buyer the home that they actually want. To win, to qualify, you know, to have that reasonable payment to avoid being house poor, that buyer, they really need to be putting down a lot of times, Shelby. We see what 10, 15, even 20% down. You don't have to, but in order to make that comfortable, to make it more affordable, the math just doesn't lie. So the math on savings, that young of a professional sally right now, it's brutal.

SPEAKER_00 1:41

It is. So quietly, all over the country and absolutely here in the Treasure Valley, parents are looking at their adult kids, looking at what they themselves have built in equity and asking a question that frankly used to be considered taboo, which is you ready? Should we be helping?

SPEAKER_01 1:59

Right.

SPEAKER_00 2:00

A lot of parents are wanting to help.

SPEAKER_01 2:02

Which is fantastic. And I think that's what we're here to help get the message about today that it's not abnormal. We're seeing that one and four right now. And what has changed culturally, culturally, that that's kind of the answer that is no longer automatically a no, right? Back in the day when you were younger, it just wasn't a thing. It wasn't right. But now that one and four are giving, it's it's great. So there used to be this generational pride around the idea of, you know, every kid figures it out for themselves, they'll get there when they get there. But we looked, I mean, we started seeing the the gap of the the uh the wages. We see the gap in the first time buyer of what it used to be and what it is now. It's just it's getting crazy. So, you know, mom and dad back then, they didn't get help. So you don't get help. That's just kind of the generational way it flows. But more families are looking honestly at math and they're saying, you know, wait a minute, mom and dad, they bought their first house at you know, 26 years old for $60,000. The equivalent today is $600,000. Right? That's it's a big deal. I mean, there are two situations that are not the same at all.

SPEAKER_00 3:10

Yeah. I had a couple in our office a few weeks ago. They bought their home in Meridian in 2003 for $195,000. We pulled the comps on it. Their home is worth about $620,000. It's amazing. They have it paid down to under $50,000 in mortgage. So they are sitting on something like $570,000 of equity in a home they raised their family in.

SPEAKER_01 3:34

And right now their kids are renting, right? They own their own house.

SPEAKER_00 3:38

Yeah. Two kids, both in their early 30s, both in good professional jobs, renting apartments in Boise, paying, oh my gosh, $1,800 to $1,900 a month for places they don't love, saving as much as they can, but the down payment math keeps moving on them faster than they can save. It's it's really crazy. And you can anticipate that, right, Garrett? I mean, if you're renting, you're guaranteed that your rent is going to go up every year.

SPEAKER_01 4:05

Every time.

SPEAKER_00 4:06

Every single time.

SPEAKER_01 4:07

And that's really the moment where the kitchen table conversation it that starts to happen. Mom, dad, they start to do the math and start figuring it out. You know, if we don't need this five-bedroom house anymore, if the kids are out, they're they're gone. We're not hosting Thanksgiving, you know, for 12 people every year. If we sold this house, what if we sold this house? We moved into something smaller, pulled out three, $400,000 of equity in the process.

SPEAKER_00 4:34

And then took a portion of that and helped each of our kids get into a home of their own.

SPEAKER_01 4:38

Which would be so great. And the beautiful pieces of this is that this is what surprises people the most time, kind of when they they think this through, they don't think it through first. But when they start looking through it, is that the parents in this scenario, they don't have to dig into retirement, right? They're not liquidating their 401k to help their kids. They don't have to take on new debt. This isn't going to be detrimental to them at all. It's this equity is already sitting in the walls of the house that they live in. So all they're doing is they're just unlocking that equity and they're putting it to work, you know, for the next generation while everyone is still around to enjoy watching it happen.

SPEAKER_00 5:13

And that, Garrett, that is the piece that matters more than people realize. A lot of parents tell us we were planning to leave the kids the house in an inheritance, right? But by the time that happens, the kids are in their 50s and 60s. That's too late. It's too late. They have spent their whole adult lives renting or stuck in a starter home that they outgrow, outgrew a long time ago. The help would have arrived way too late.

SPEAKER_01 5:39

It's it's it is too late. By the time they're in their 50s or 60s and they're in their first home that they're inheriting, it just doesn't work. But if you do this and you kind of look at the kids in their in their early 30s, they spend the next 30 years building their own equity, right? If we look at it from that angle, they raise their kids in a home that they own, right? They get the full power of compounding appreciation as well, just like the parents did from a much easier starting line.

SPEAKER_00 6:04

For sure. So let me drop drop in some quick mechanics because the questions come up every single time. The most common version is a straight cash gift from sale proceeds, right? Parents sell the existing home, close on the smaller home, and from the equity left over, they write a check to the adult child to use as the child's down payment. Lenders see gifted down payments every single day. There is a paper trail, a gift letter, some source of funds documented.

SPEAKER_01 6:33

Every day. Like we said, one in four buyers are using absolutely one in four. And then the the tax question. You know, the parents start asking that. You know, we're we're not CPAs. So on this next portion here, we want you to definitely talk and run this through your CPA professional. But for the overwhelming majority of families, there's no actual gift tax that's owed. I mean, the IRS, they updated it every year. Um, in 2025, they updated the individual gift, can be up to $19,000 per recipient per year without being taxed, which is great. And a married couple, this is one that I hear does not come up as often, they can gift up to $38,000 to one adult child in a single year. And again, not taxed. Yeah. And gifts beyond this, here's the thing that a lot of people don't realize, and this is a really good one to talk to CPA about. If you're gifting more, let's say you're gifting $100,000 for a down payment, which probably isn't necessary, but if they did go above that, this is one that there's a 2017 tax cut and jobs act where anything extra above that $19,000, those extra funds get applied against what they call a lifetime exemption that sits just under that $14 million per person as an exemption. So a really good one to talk to the CPA about if you're thinking about gifting more than that $19,000 or $38,000.

SPEAKER_00 7:52

Yeah, that's good information. And one other piece worth knowing a gift expands the kid's buying power because it shows up as a down payment without a corresponding monthly debt. A family loan, even from mom and dad, gets counted against the kid's debt to income ratio by the lender. I did not know that initially. So an inter an intrafamily loan, even though it feels helpful, can actually shrink what the kid qualifies for. In our experience, the clean cash gift from sale proceeds is almost always the right structure.

SPEAKER_01 8:24

Yeah. And I and I do really want to be clear here, Shelby, with everyone. This strategy is not right for everyone.

SPEAKER_00 8:30

No, right?

SPEAKER_01 8:30

Not right for every family. There is the hard question that you have to answer first. Can the parents actually afford it without sacrificing their own retirement? That's what we don't want to have happen. So, do the parents genuinely want the downsides for themselves? Or is the kid, you know, driving the conversation of help us out? And and are the kids actually ready to step into their own home? Maybe they like renting. Maybe they're not ready for that as well. So when those three boxes don't get checked, this is one of the most rewarding transactions that we can be part of. It's it's great. And when they don't, we'll tell you what happens.

SPEAKER_00 9:07

Absolutely. Coming up, we are bringing Taylor Lee, one of our first time buyer specialists and an absolute rock star of an agent here at Idaho Life. If you're a first time home buyer or if you love one, this is the conversation you want to hear. Don't go anywhere.