Can You Use Your Home's Equity to Help a Family Member Buy a House?

A guide for homeowners across Northern Clark County and the greater Springfield area weighing a HELOC, a gift of equity, or a family loan.

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Published November 2026 · Updated November 2026 · By Douglas Haney & The Haney Group, Springfield, OH

Douglas Haney leads The Haney Group at Coldwell Banker Heritage and helps buyers and sellers navigate Northern Clark County, Springfield, and the surrounding Ohio market every day.

Quick Answer

Yes — a HELOC, a cash-out refinance, a gift of equity, or a family loan can all help a relative buy a home, but they carry very different risks. A HELOC or cash-out refinance puts your own home in Northern Clark County or wherever you live on the line for someone else's purchase, while a properly documented gift of equity or a correctly structured intrafamily loan can help without that direct risk — as long as you follow IRS gift-tax rules and the lender's gift-letter requirements.

If you own a home in Northern Clark County, German Township, or anywhere around Springfield and you're watching an adult child or another family member struggle to put together a down payment, you're not alone. We hear this question constantly from homeowners whose own mortgage is paid down or close to it, sitting on real equity, wondering whether there's a responsible way to put it to work for someone they love.

There is — actually, there are several ways — and they're not interchangeable. Some put your own home at risk if things go sideways. Others don't touch your mortgage at all but come with IRS paperwork you can't skip. Here's what I tell every homeowner who asks me this: pick the method based on how much risk you're willing to take on yourself, not just on which one sounds easiest.

This guide walks through the four real paths — a home equity line of credit (HELOC), a cash-out refinance, a gift of equity, and a family loan — so you can go into the conversation with your family, and with your lender, already knowing the tradeoffs.

Can You Use a HELOC or Cash-Out Refinance to Help a Family Member Buy a House?

Yes, and it's one of the more common ways homeowners tap their own equity to help — but the detail people miss is that the loan stays attached to your house, not theirs. A home equity line of credit or a cash-out refinance lets you borrow against the value you've built in your own home and hand that cash to a family member for their down payment. Nothing about the loan changes whether the money goes toward your kitchen remodel or your daughter's down payment — the lender doesn't care what you do with the funds once it's in your account.

What that also means: if you can't make the payments on that HELOC or the new, larger mortgage balance down the road, it's your home at risk — not the home your family member is buying. Their purchase and your repayment obligation are completely separate from the lender's perspective. We walk clients through this distinction every time, because it's the single most misunderstood part of using home equity this way.

Method	Puts Your Home at Risk?	Gift-Tax Paperwork?	Repayment Expected?
HELOC	Yes — it's a lien on your house	Only if the cash itself is a gift over the annual exclusion	You repay the lender; your family member may or may not repay you
Cash-Out Refinance	Yes — your whole mortgage balance grows	Same as above	You repay the lender over the new loan term
Gift of Equity	No — no new loan on your home	Yes — signed gift letter required by the lender	No — it's a true gift, not a loan
Intrafamily Loan	No — unsecured, personal loan	Yes — minimum IRS interest rate rules apply	Yes — documented promissory note

Sources: Fannie Mae Selling Guide, B3-4.3-05 · IRS Gift Tax FAQ

Questions to Ask Before You Tap Your Equity for a Family Member

✅	Can I still comfortably afford my own mortgage, taxes, and retirement savings if I take on new debt?
✅	Is this meant to be a gift, or do I expect to be repaid? Put the answer in writing either way.
✅	Have I talked to my own lender or CPA about how this affects my taxes and my debt-to-income ratio?
✅	Does my family member's lender require a specific gift-letter format, and have we gotten that form from them directly?
✅	If I'm selling my own home to a relative at a discount, have we documented the gift of equity on the settlement statement?

📘 Free Guide: Buying or Selling a Home in Southwest & Central Ohio

Whether you're the one gifting equity or the one receiving it, our free guide walks through financing, closing costs, and timing so there are no surprises on either side of the deal.

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💡 Haney Group Insight

If you've already looked at a HELOC or a cash-out refinance for your own home, you already understand half of this decision — the other half is whether the money is a gift or a loan to your family member, and that's the part that needs to be in writing before anyone signs a purchase agreement.

What Is a Gift of Equity and How Does It Work?

A gift of equity happens when you sell a home to a family member for less than it's worth, and the lender lets the difference between the market value and the sale price count as the buyer's down payment or closing costs. If your home appraises at $220,000 and you sell it to your son for $190,000, that $30,000 gap can be documented as a gift of equity — no cash has to actually change hands.

Fannie Mae's guidelines are specific about how this has to work: the gift has to come from an acceptable donor — almost always a relative — who isn't expecting repayment, and it has to be backed by a signed gift letter stating the amount, the relationship, and that no repayment is expected, plus a settlement statement that reflects the gift. It can be applied to the down payment and closing costs on a primary residence or second home, but it can't be counted toward the buyer's cash reserves.

❌ Myth Since no cash actually changes hands in a gift of equity, there's nothing to report to the IRS and no gift-tax rules apply.

✅ Fact The IRS treats a gift of equity as a gift of its dollar value, same as cash. If the equity gifted exceeds the annual exclusion ($19,000 per recipient in 2026, $38,000 for a married couple splitting gifts), the donor files IRS Form 709 — though actual tax usually isn't owed unless lifetime gifts exceed the $15 million exemption.

Should You Gift the Money, Lend It, or Co-Sign Instead?

If you'd rather be repaid than make an outright gift, a documented intrafamily loan is the more formal route. You draw up a promissory note with a set interest rate, payment schedule, and term, just like a bank would. The one rule you can't skip: the IRS requires the interest rate on a family loan to be at or above that month's Applicable Federal Rate, or the agency can treat the difference as an imputed gift. The IRS publishes new AFRs every month, so the exact minimum rate changes — ask your lender or CPA for the current figure before you set the note's terms rather than relying on a number you saw somewhere else.

Co-signing is a fourth option, and we covered that path in detail separately — it doesn't use your home equity at all, but it does put your own credit and debt-to-income ratio on the hook for someone else's mortgage, which is its own kind of risk.

HELOC → fastest, riskiest to your home Gift of Equity → best when you're the seller Family Loan → best if you want to be repaid

What Does This Look Like in Northern Clark County?

We're seeing this question more often from longtime homeowners across Northern Clark County and the German Township corridor — folks who bought 20 or 30 years ago, have their mortgage paid down or paid off entirely, and have an adult child trying to buy their first home somewhere between Springfield and the Dayton suburbs. The math is often more favorable here than it would be in a higher-cost market: with home values across Clark County still well below the national median, even a modest gift of equity or a smaller HELOC draw can cover a meaningful share of a starter home's down payment.

The same conversation comes up regularly out toward Plain City and the Madison County side of our service area, where rising prices have made it harder for first-time buyers to compete without family help. Whichever side of this transaction you're on — the one with the equity or the one who needs it — knowing what your home is actually worth today is the first step before you decide how much of that equity makes sense to put to work. We still work with clients throughout Springfield and the wider region on exactly this kind of decision.

"Here's what I tell every homeowner who asks me this: pick the method based on how much risk you're willing to take on yourself, not just on which one sounds easiest."

💡 Haney Group Insight

A gift of equity only works cleanly when you're the one selling the home to your family member. If you're not selling — you just want to help them buy a different house entirely — you're back to a HELOC, a cash-out refinance, or a straight cash gift or loan, and the comparison table above is the one to work from.

DH

"Every family I've walked through this starts with the same question — 'should I just give them the money?' — and almost every time, the better question is 'can I afford to never see this money again?' If the answer is yes, a gift is simpler. If it's no, put it in writing as a loan from day one, not after the first missed payment." — Doug Haney

Frequently Asked Questions

Can I use a HELOC to help my child buy a house?

Yes. You can draw on a home equity line of credit and give or lend the cash to your child for their down payment. The HELOC is secured by your home, not theirs, so you're responsible for repaying it regardless of what happens with their purchase.

What is a gift of equity and how does it work?

A gift of equity is when you sell your home to a relative below market value, and the lender credits the difference toward the buyer's down payment and closing costs. It requires a signed gift letter and has to appear on the settlement statement, per Fannie Mae's guidelines.

How much money can I gift a family member for a down payment tax-free in 2026?

You can give up to $19,000 per recipient in 2026 ($38,000 if you're married and splitting the gift) without filing a gift tax return. Giving more doesn't automatically mean paying tax — it just means filing IRS Form 709 to track it against your much larger lifetime exemption.

Is it risky to use my home equity to help a family member buy a house?

It puts your own home on the line, not theirs — a HELOC or cash-out refinance is secured by your property, so if you can't keep up the payments, your home is at risk regardless of how their purchase turns out. A gift of equity or a documented loan avoids that specific risk.

Can I lend my child money for a down payment instead of gifting it?

Yes, through a documented intrafamily loan with a promissory note. The IRS requires the interest rate to be at or above that month's published Applicable Federal Rate, or the unpaid interest can be treated as an additional taxable gift — check the current rate with your lender or CPA before setting the terms.

Does a gift of equity reduce my family member's loan amount, or just their down payment?

Both, in effect. Because the sale price itself is lower than market value, the buyer needs a smaller mortgage overall, and the "gifted" difference can also satisfy some or all of the down payment and closing cost requirement, depending on the loan program.

Whichever path fits your family's situation, the decision comes down to the same question every time: how much risk to your own home and your own retirement are you comfortable taking on to help someone else get into theirs? A HELOC and a cash-out refinance get the money moving fastest, but they're still your mortgage. A gift of equity or a properly documented family loan takes more paperwork up front but keeps your own home out of it.

If you're weighing any of these options — whether you're the homeowner with the equity or the family member hoping to use it — Douglas Haney & The Haney Group can walk through what it means for your specific numbers, your specific lender, and your specific corner of Northern Clark County, Springfield, or wherever you call home.

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The Haney Group at Coldwell Banker Heritage · (937) 821-8103 · thehaneygroup.com