Smart Ways to Accept Help from a “Rich Uncle” When Buying a Home

In competitive housing markets like Los Angeles, it’s not uncommon for first-time buyers to lean on family support—especially when it comes to the down payment. Whether it’s a parent, grandparent, or a “rich uncle,” this kind of financial boost can help buyers enter the market sooner and with stronger terms.

But not all help is created equal. If not structured properly, a generous gift can create tax headaches, impact your loan approval, or even lead to future disputes.

Here’s how to safely and strategically structure a family-assisted down payment.

Option 1: A Down Payment Gift

This is the most common structure—and the simplest from a lender’s perspective.

✅ What to Know:

• Must be a true gift, not a loan disguised as a gift
• Your lender will require a gift letter signed by the donor confirming the money is not expected to be repaid
• You may need to document the transfer with bank statements showing the source and receipt of funds

🚫 Common Mistakes:

• Depositing the gift into your account without documentation
• Attempting to hide repayment terms (which can disqualify you for certain loans)
• Triggering gift tax obligations by exceeding IRS thresholds

💡 Pro Tip:

• In 2025, an individual can gift up to $18,000 per recipient per year tax-free under the IRS annual exclusion, or $36,000 if gifted by a married couple. Anything above that may require filing a gift tax return—but rarely results in tax owed.

🏦 Option 2: A Family Loan

In some cases, family members prefer to structure the down payment as a loan rather than a gift. This can work—but it must follow specific guidelines.

✅ What to Know:

• You’ll need a formal promissory note stating the interest rate, repayment terms, and consequences of nonpayment
• The IRS requires a minimum interest rate (called the Applicable Federal Rate or AFR), even if the loan is between relatives
• Your lender may count this as a debt obligation, which could affect your debt-to-income ratio and loan approval

🚫 Don’t:

• Use vague verbal agreements
• Avoid disclosing the loan to your mortgage lender
• Forget to document repayments for tax and legal purposes

💡 When to Use This:

• If a family member wants the money returned over time or wants to create a private lending arrangement to avoid capital gains or other tax events.

🧾 Option 3: Co-Buying or Equity Sharing

Some relatives want more formal participation in the home purchase.

Examples:

• Co-ownership: The family member goes on title and mortgage as a co-borrower
• Equity share agreement: They provide the down payment in exchange for a percentage of future appreciation

⚖️ Important Considerations:

• Title structure (joint tenancy, tenants in common, etc.)
• Responsibilities for taxes, repairs, and future sales
• Legal agreements outlining exit strategies and dispute resolution

This is more complex but can work well for investment-minded relatives or when multiple family members are pooling resources.

📑 Documentation Is Everything

Regardless of the method, lenders and tax authorities will require clear documentation.

• Gift letter (for gifts)
• Promissory note (for loans)
• Ownership agreement (for shared equity)
• Bank statements showing transfers

Work with a real estate attorney or experienced mortgage advisor to ensure everything is structured correctly. It can save you time, money, and potential conflict.

Final Thoughts

Family financial help can open the door to homeownership—but it must be done with clarity, transparency, and planning. The right structure depends on your relationship, your goals, and your financing needs.

At the Stephanie Younger Group, we’ve worked with many buyers navigating family-funded purchases. We’ll help you collaborate with your lender, protect relationships, and make sure the help you receive helps you—not hurts your approval.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Buyers should consult with a CPA, attorney, or licensed mortgage advisor before structuring family financial contributions.