Using HELOC funds for a family member

It's common and generous. It also puts your home behind someone else's finances.

Reviewed by Shawn Way, NMLS #1007298★ 4.9 from 111 reviewsUpdated October 28, 2026

Protect both sides

• Decide whether it's a gift or a loan, in writing.
• Only lend what you could afford to lose.
• Large family loans can have IRS interest-rate rules; ask a tax professional.

Helping with a down payment

If you draw from your HELOC to gift money to a child for a down payment, their lender looks at the source. Many programs allow gifts from family, documented with a gift letter and a paper trail; some don't allow the gift to come from borrowed funds. Check before you draw.

Alternatives

• Co-sign their loan instead (you're fully liable either way).
• Down payment assistance programs. How DPA works.

Ways to structure help

• A gift: simplest; no repayment expected. Gifts above the annual exclusion require filing a gift tax return, though tax is rarely owed.
• A family loan: put it in a promissory note with a payment schedule. For larger loans, charging at least the IRS's applicable federal rate avoids tax complications.
• A recorded loan: if you're helping buy a home, a loan secured by a recorded lien on their home protects you, but their lender must approve it.

Example

A parent draws $40,000 to help a son buy his first home. The parent pays about $258 a month interest-only at 7.75% APR. If the son's lender requires a gift letter, the money must be a true gift with no repayment expected, so the parent should be prepared to carry the payment without help.

Questions to ask yourself

• Could you make the payment if you're never repaid?
• Would helping one child create expectations from others?
• Does it delay your own retirement savings?

Example: helping with medical bills

A daughter draws $15,000 to cover her father's care while he waits on long-term care insurance. They agree he'll repay when the claim pays out. She documents it with a simple note and draws only as invoices arrive. When the claim pays six months later, he repays her, and she pays the line to zero. Had the claim been denied, she was prepared to carry the payment herself.

Checklist

• Gift or loan, decided in writing.
• A payment you can carry alone.

Also asked

Can I charge interest on a family loan from my HELOC?

Yes, and for larger loans, charging at least the IRS applicable federal rate avoids imputed-interest tax issues. A tax advisor can confirm.

What happens to my HELOC if a relative stops repaying me?

The HELOC is still yours to repay in full if a relative stops paying you back, because the line is in your name and secured by your home. Decide in advance what you'll do, and treat the help as a gift you might not get back.

Can I use a HELOC to help a relative with a down payment?

Yes, you can draw from a HELOC to gift a relative down payment money, but the buyer's lender will want a gift letter and a paper trail, and some loan types don't allow gift funds that were borrowed. Check before you draw.

Should a family loan for a home be recorded as a lien?

Often, for a large loan. Recording a lien on the relative's home protects you if they don't repay, but their mortgage lender must approve it first.

Will using my HELOC to help family affect my own borrowing?

Yes. Once you draw on your HELOC to help family, its payment counts in your debt-to-income ratio for any future loan you apply for.

Does gift tax apply when I help a relative?

Gifts above the annual exclusion per person require filing a gift tax return, but tax is rarely owed because the amount counts against a large lifetime exemption. A tax advisor can confirm for your situation.

More in HELOC guides

• Using a HELOC to buy a rental
• HELOC for a down payment
• HELOC to fund a business
• HELOC for college costs
• HELOC as an emergency fund
• Should you use a HELOC to buy a car?
• Should you use a HELOC to pay for a wedding?
• Should you use a HELOC to invest in stocks?

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