Should You Co-Sign or Co-Borrow for Your Child’s First Home?

Purchasing a first home has become increasingly challenging for young adults due to rising home prices and elevated mortgage rates. As of April 2025, the median sales price for new houses in the U.S. was $407,200, while the average 30-year fixed mortgage rate stood at approximately 6.89%.

To illustrate the impact of these factors, consider a $400,000 mortgage:

• At a 6.89% interest rate, the monthly payment would be approximately $2,661.

   

• At a 3.35% interest rate, the monthly payment would be approximately $1,763.

   

The difference of nearly $900 per month underscores the financial strain higher interest rates can impose, especially for those with a very tight budget.

Within this context, a parent might consider co-signing or co-borrowing to assist a child in securing a mortgage. Either of these arrangements can enhance the child’s borrowing capacity, potentially leading to more favorable loan terms. 

However, co-signing or co-borrowing also comes with significant responsibilities and risks. Having a thorough understanding of the implications for your wealth management strategy before proceeding is important. We’ll explore each of these arrangements in this blog. 

Young Adults Turn to Parents to Help Secure a Mortgage

Sometimes achieving homeownership requires help from a family member or trusted partner. If credit, borrowing history, or debt-to-income ratios are issues for the adult child in acquiring a traditional mortgage, or if the adult child is interested in securing a lower interest rate, a co-signer or co-borrower might be a solution to obtain the lending needed to secure a home.

As a parent, you should consider the key differences between becoming a co-signer or co-borrower.

The Impact of Co-Signing a Mortgage

A co-signer agrees to repay the mortgage if the primary borrower defaults. A co-signor is often used when the primary borrower’s income or credit is insufficient to qualify for a loan. 

One critical aspect of this type of arrangement is that while you have legal responsibility for the loan repayment, you have no right to the home or its equity. The co-signed loan will increase the debt on your balance sheet, and if the primary borrowing child doesn’t make payments, your credit could suffer. Your co-signing provides additional security in the arrangement for a lender. 

The Impact of Co-Borrowing a Mortgage

Alternatively, a co-borrower will share both in the responsibility for repaying the loan and the ownership of the property. This arrangement is common when two or more people want to purchase a home together and share ownership. Liability is shared by both parties, as is any gain or loss in the property itself. Co-borrowers will provide a combined creditworthiness for a lender, and both the income of the parent and child are considered for loan eligibility.

The Impact of Co-Owning a Property

Co-owning a property introduces complexities in managing the property, taxation, estate planning, and long-term financial planning. Understanding the types of ownership available is a critical starting point. 

• Joint Tenants with Rights of Survivorship (JTWROS) is a type of real property ownership between two or more people who equally own the property and have the right to survive each other. When an owner dies, their ownership share automatically passes to the other owner(s). 
• If multiple people own a property via Tenants in Common (TIC), they do not own the property with a right of survivorship. When one owner dies, their interest in the property passes to their beneficiaries or heirs as specified in their estate plan.

Both types of ownership offer differing results upon the death of an owner and should be understood before the purchase.

When thinking about owning real property with a child, a parent should also consider other factors besides the ownership structure.  

Here are some tactical questions to help shore up future uncertainty ahead of time:

• Who will be responsible for the mortgage, taxes, insurance, homeowner’s dues, utilities, and maintenance?
• Who will decide on refinancing, renting, selling, or remodeling?
• Will both parties participate in the property’s capital appreciation (or depreciation), even if only one party is paying the monthly mortgage? Who is responsible for any capital gains tax due upon a future sale?
• Is one of the co-owners married? What would happen in a future marriage, divorce, or death?
• Will you, as the co-owner, try to preserve the step-up in basis for your share of the ownership, or will you eventually want to gift your portion to your co-owning adult child, and how will this affect your estate plan and gifting strategies for any other children?
• What if your adult child simply loses their job and can’t pay the mortgage, or you or your spouse goes into long-term care and is unable to continue to handle your financial responsibilities? Should an emergency fund or contingency plan exist?
• What if one party simply wants out of the arrangement? Will a buyout, a selling process, or a transfer option exist? Will there be a right of first refusal for the non-selling party?

A well-drafted operating agreement might sound too technical of a requirement for an intrafamilial arrangement, but it is critical between any co-owners of real property. 

An operating agreement is a legally binding document that outlines ownership percentages, contribution requirements, responsibilities for payments and upkeep, procedures for dispute resolution, and the terms for selling or transferring the property. It can prevent misunderstandings, facilitate smooth decision-making, protect against lawsuits and foreclosure, and outline a clear exit strategy.

Tax Considerations

Another consideration in a co-borrowing relationship is who will benefit from paying the mortgage interest on their tax return. The IRS has established that the mortgage interest deduction can only be taken by a party who owns and pays the mortgage. So, if your child has both an ownership interest in the property and pays the mortgage without your assistance, they can take the mortgage interest deduction, but you cannot. 

If the mortgage payments are split between you and your child, both of you can claim the mortgage interest deduction, but it must be split based on what was paid by each of you during the year.  

If the mortgage interest statement (Form 1098) comes out in only one party’s name, a supplemental statement with each tax return might be needed to explain the deduction division if both parties plan to take the deduction for the interest they paid in a particular year.

The Importance of Working with a Fiduciary Financial Advisor

With so many interrelated considerations and decisions related to assisting your child in purchasing their first home, it makes sense to develop a strategy that aligns with your financial and retirement plans. 

This is where working with Peak Asset Management, a fiduciary financial advisor in Boulder, CO, can provide thoughtful insight and advice as you consider helping your child purchase their first home. There are so many important financial and legal considerations when deciding whether to provide down payment support, co-borrow on the mortgage, co-sign, or even co-own the house. It would not be prudent to make decisions prior to receiving guidance from a seasoned wealth manager.

Peak Asset Management has experience helping parents structure these arrangements to support their children’s homeownership goals while protecting their own financial future. Peak’s personalized guidance can help you avoid common pitfalls and find a balanced approach that aligns with your family’s long-term financial security.

A thoughtful approach, guided by Peak and other legal and tax professionals, can help accomplish the objective of assisting an adult child in establishing homeownership while avoiding potentially messy situations in the future.

Connect with us to learn more about our wealth management strategies. 

Jason Foster, Director of Wealth Strategies and Legacy Planning