Parents stepping in as private lenders to their children, essentially becoming the Bank of Mom and Dad, has reached new heights as elevated mortgage rates, high home prices, and stricter underwriting have made it more difficult than ever for people to purchase their first homes. According to the National Association of Realtors, the average age of a first-time homebuyer reached a record of 40 in 2025, a stark contrast to just 28 in 1992.
In a recent Wall Street Journal article, a concerned mother shared that she and her husband bought a two-bedroom bungalow in 1992 for less than $100,000 in Chicago with relative ease. Today, their daughter earns about the same as what they earned combined back then, yet she could not afford to buy in Chicago without the help of her parents. Their real estate agent also reported that 10 of his clients in the past year received homebuying assistance from their parents.
Additionally, a real estate brokerage operator expressed to the Wall Street Journal her frustration at watching the homebuyer average age keep ticking upward while parents hold onto wealth they plan to bequeath to their children only after their death. She decided to buck the trend and purchase a ranch home for her daughter.
At the same time that would-be homebuyers are being pushed out of conventional financing and the pace of upward mobility has slowed to a crawl, many parents are wealthier on paper than their children thanks to decades of home price appreciation and retirement savings growth. We’ve explored the trade-offs of whether it is better to give your child a gift or a loan, noting that a properly documented loan can sometimes be the more practical choice for both parents and children.
A loan, rather than a pure gift, can help parents:
- Avoid resentment among siblings by documenting who received what and on what terms
- Potentially recycle capital so the same dollars can help more than one child over time
- Preserve some discipline around repayment and responsibility
Though parents haven’t traditionally considered themselves lenders, even loans from the Bank of Mom and Dad need to be tracked in an emotionally neutral way that feels professional without involving a bank.
How Bank of Mom and Dad Loans Are Funded
Proper loan tracking starts with understanding the source of funding. Parents who saw the writing on the wall early as they tracked economic conditions for themselves and their children have intentionally saved to help their loved ones with a down payment, second mortgage, or full private loans. Others simply benefited from the growth of their investments enough to be in a position to help, and want to tap into their capital stack responsibly.
Family Offices, Trusts, and Closely-Held Entities
If the Bank of Mom and Dad happens to be a higher-net-worth family with a family office, trust, or LLC set up, the loan may be most easily funded through such an entity. Arrangements like intrafamily loans or trust-based structures that provide housing support while preserving existing estate-planning goals can be more complex to set up but overall provide a more flexible structure—especially when multiple properties or siblings are involved.
Retirement Accounts (with Limits)
Funding private loans from retirement money may look like a viable option, but parents need to be careful about the rules. The IRS generally prohibits lending directly from a self-directed IRA to children, grandchildren, or parents—any lineal descendants—and doing so can result in severe tax consequences. Talk to a tax professional to make sure you don’t run afoul of such regulations.
Taxable Investment Accounts and Cash Savings
Some parents have well-funded brokerage accounts, savings, or enough home equity to fund a private loan with repayment terms structured in a way that fits their child’s budget.
Regardless of how the loan is funded, any Bank of Mom and Dad loan is just that—a loan—and needs to be documented and tracked like any other loan.
Tracking Bank of Mom and Dad Loans Over Time
When parents decide to lend to their children, a promissory note needs to be written with the terms and repayment schedule including an amortization schedule with the interest rate and principal payments clearly indicated for the length of the loan. The interest rate needs to be set at or above the applicable federal rate to prevent tax avoidance issues, and every transfer of funds (initial funding of the loan, how payments are made, and how those payments are applied) must be documented.
Proper tracking of loans parents make to their children keeps everyone on the same page even as life changes. Parent-to-child home loan tracking should minimally include:
- A clear amortization schedule showing each payment reducing the balance
- An up-to-date ledger of every payment, including partial or skipped payments
- A record of interest versus principal payments for tax reporting
- A way to adjust terms that’s clearly documented, such as a temporary reduction in payments
Dedicated friends and family loan tracking tools can automate much of this by calculating interest, tracking payments, and generating statements. Over time, these records become valuable evidence if the Bank of Mom and Dad loan is ever restructured, forgiven, or referenced in estate planning. It also helps prevent misunderstandings; clear communication is foundational in every relationship and is especially important when money is involved.
By treating Bank of Mom and Dad loans with the same care expected from a traditional lender (but with more flexibility), financial help can become a well-understood commitment supporting both parents’ long-term plans and their children’s path toward homeownership.
Allison Murray is a recognized payments and financial technology expert with more than 10 years of leadership experience in payment technology and financial services infrastructure. With a proven track record of developing frameworks that drive value creation for fintech companies, Allison’s technical knowledge and industry foresight have earned peer recognition across the payments industry. She has spoken at leading fintech conferences including Money20/20 and Finovate, received the Los Angeles Business Journal’s Women’s Leadership Award in 2020, and actively contributes to the fintech community through NYC Fintech Women and the Women’s Network in Electronic Transactions (WNET).
Disclaimer: This content is for informational purposes only and does not constitute legal, tax, or financial advice. Readers should consult with a qualified professional before making any decisions regarding family lending or real estate transactions. Individual circumstances and applicable laws may vary.