Funding the Down Payment: Gift, Family Loan, or Sell the Stock?

A tech family earning $300k base plus $350k in restricted stock is looking at a $1.75M home. The affordability question gets most of the attention: can the payment fit the budget, does it survive an RSU drawdown, how much should go down. Those are answered in two companion guides. This one answers the question that comes next and gets far less coverage: once you know how much to put down, where should the cash actually come from?

For a high earner, the down payment is rarely a simple transfer from a checking account. The money tends to sit in appreciated brokerage holdings, in concentrated employer stock, or in a parent’s estate that the family intends to pass down eventually. Each of those sources carries a different tax bill, a different effect on your liquidity, and a different effect on how soon you reach financial independence. The monthly mortgage payment barely changes. The after-tax cost of funding it changes a lot.

Two different questions, often confused

Keep these separate. The first is how much house, and how much down: an affordability and risk-budgeting decision driven by your base salary, your reserves, and your tolerance for an RSU-dependent plan. The second is how to fund the down payment: a tax and liquidity decision driven by where your cash is and what it costs to move it.

If you have not settled the first question, start with how much to put down on a house and the house-poor stress test. This guide assumes you have a target down payment and a sound purchase, and focuses entirely on the funding mechanics.

The three places the cash can come from

Beyond the cash you already hold, an extra dollar of down payment comes from one of three sources, and the right answer depends on which one you are tapping.

• Selling appreciated investments. Includes diversified index funds and concentrated employer stock. Clean to execute, but it realizes capital gains and shrinks the portfolio that is carrying you toward financial independence.
• A family gift. Parents or grandparents transfer money they intend to pass down anyway. No repayment, no capital gains for you, and it preserves your own liquidity. The catch is documentation and the question of whether the family truly means it as a gift.
• A family loan. The family lends at the IRS Applicable Federal Rate, below a market mortgage. It lowers the interest rate on part of your financing without realizing gains, but you still owe the money and it can complicate underwriting and family relationships.

Mortgage rates set the backdrop. Freddie Mac’s Primary Mortgage Market Survey put the average 30-year fixed rate around 6.5% in mid-2026.¹ At that level, the financing math is meaningful, so where you source the cash is worth getting right.

The hidden cost of selling appreciated stock

Selling investments to fund a down payment feels free because the money is already yours. It is not free. For 2026, long-term capital gains are taxed at 0%, 15%, or 20%, with the 20% bracket beginning above $613,700 of taxable income for married couples filing jointly. Households above $250,000 of modified adjusted gross income also owe the 3.8% Net Investment Income Tax.² A tech family with this income is firmly in 20% plus 3.8%, a 23.8% federal rate on long-term gains, before any state tax.

Suppose you sell $250,000 of stock with a 50% embedded gain to fund an extra $250,000 down. The $125,000 of realized gain costs roughly $30,000 in federal tax at 23.8%. That is cash out the door now, plus the loss of future tax-deferred compounding on the shares you sold. For concentrated employer stock the diversification benefit can justify the sale on its own, but the tax is real and it is the part most buyers leave out of the comparison.

There is a portfolio-construction reason to care, too. Research on housing and portfolio choice finds that committing wealth to a home crowds out stock holding, especially for households without deep financial assets, and that taking on mortgage debt measurably reduces the share of liquid wealth held in equities.³ Selling diversified investments to enlarge an illiquid, geographically concentrated asset is a real shift in your risk profile, not a neutral reshuffling.

The family gift: clean, documented, bigger than the exclusion

A gift helps in three ways at once. It reduces the mortgage, it leaves your taxable portfolio intact, and it avoids the capital gains tax that selling would have triggered. For a family that plans to transfer wealth eventually, accelerating part of it to fund a home is often the most efficient single move available.

The numbers people fear are mostly not a problem. For 2026 the annual gift tax exclusion is $19,000 per recipient, and the lifetime estate and gift tax exemption is $15 million per person.⁴ Two parents can give $19,000 each to both members of a married couple in one year, $76,000 total, with no filing and no use of the lifetime exemption. Larger gifts are still almost always tax-free in practice: a gift above the annual exclusion simply requires a Form 709 and draws against the $15 million lifetime exemption, which very few families will ever exhaust. The annual exclusion is a paperwork threshold, not a tax cliff.

Distinguish a tax gift from an economic gift. A clean $76,000 annual-exclusion gift is tidy and helpful. A $250,000 gift is far more powerful in what matters here: it cuts mortgage exposure, preserves your liquidity, and reduces how much the household depends on future RSU vests to carry the payment. The fact that it uses a sliver of the lifetime exemption is a rounding error against that benefit.

Underwriting has rules. Lenders require gift funds to be documented as a gift, not a disguised loan. Fannie Mae allows gifts from a relative toward the down payment, closing costs, and reserves, with a signed gift letter stating the amount, the relationship, and that no repayment is expected.⁵ If the family expects to be paid back, it is not a gift, and treating it as one creates a problem at closing.

The family loan: a rate play, not a wealth transfer

A family loan is a different tool. It does not transfer wealth and it does not realize gains; it swaps part of your financing from a market mortgage to a lower-rate loan from a relative. The IRS publishes the minimum rate monthly. The June 2026 long-term Applicable Federal Rate was 4.87%.⁶ Against a 6.5% mortgage, that is a spread of about 1.6 points.

On $250,000, that spread is worth roughly $4,000 in interest in the first year, declining as the balance amortizes. Real money, but a rate discount on borrowed funds, not a gift. You still owe the $250,000 back, the interest you pay is taxable income to the family member who lent it, and the obligation can affect your debt-to-income ratio when the mortgage lender underwrites you.

Document it like a real debt. If a family loan is priced below the Applicable Federal Rate, the IRS can treat the foregone interest as imputed and tax it as though it had been paid, under the below-market loan rules.⁷ A loan at or above the AFR with a written note and an actual repayment schedule avoids that. The cleaner principle: use a gift if the family genuinely means to transfer the money, and a loan only if everyone genuinely intends repayment. Do not disguise one as the other.

Run your funding mix

The calculator compares the three routes for the same extra down payment: the capital gains tax that selling triggers, the first-year interest under each option, the monthly payment, and how much liquid portfolio you have left after closing. Change the embedded gain and the AFR to fit your situation.

Do not let the mortgage-interest deduction drive this

A common rationalization for a bigger mortgage is the interest deduction. At this price point it is smaller than people assume. IRS Publication 936 limits the deduction to interest on the first $750,000 of acquisition debt for loans taken after 2017.⁸ On a $1.4M mortgage, interest on the half above the cap is not deductible at all. The deduction is a modest offset, not a reason to carry more debt or to skip a gift that would reduce it. Size the funding decision on cash, tax, and liquidity, and treat the deduction as a small bonus.

What this does to your FIRE math

The funding choice barely moves the monthly payment, but it moves two things that matter for financial independence: how much investable capital you keep, and how much you owe.

Selling $250,000 of stock plus paying $30,000 in tax removes $280,000 from the portfolio that compounds toward your FIRE number. A gift of the same $250,000 leaves that capital invested and adds nothing to what you owe. A family loan also leaves the portfolio intact but adds a $250,000 liability against your net worth. For an early-retirement plan, preserved liquid capital is worth more than the same dollars locked in home equity, because it can be spent, rebalanced, or used to bridge an income gap.

Permanent housing cost is the other lever. Morningstar’s 2026 retirement income research estimates a 3.9% safe starting withdrawal rate for a 30-year horizon at a 90% success probability.⁹ At that rate, every $10,000 of permanent annual housing cost requires about $256,000 of portfolio to support in retirement, roughly $250,000 at a 4% rate and about $333,000 at a more conservative 3%. A funding choice that lowers your ongoing carrying cost, by reducing the mortgage with a gift rather than financing it, lowers the FIRE number you have to hit. For the full framing, see the FIRE calculator and safe withdrawal rate guides.

Who should take family help, and who should not

A family gift or loan makes sense when:

• The family genuinely intends to transfer wealth, and doing it now to fund a stable family home is more useful than doing it later.
• The alternative is selling appreciated or concentrated stock and realizing a large tax bill you would rather defer.
• Preserving liquidity matters because your income leans on RSUs and you want a deeper post-close reserve.
• Everyone can document the transfer cleanly and is comfortable with the arrangement, including a spouse and any siblings who might perceive unequal treatment.

It makes less sense when:

• The gift or loan is what makes an otherwise unaffordable house look affordable. Family help should reduce risk on a sound purchase, not rescue a stretch.
• The loan would be priced below the AFR or left undocumented, inviting imputed-interest problems or a dispute later.
• The family cannot afford it, or the money is needed for their own retirement or care. A gift that destabilizes the giver is not a good trade.
• Selling concentrated employer stock is the financially healthier move regardless, because the diversification benefit outweighs the tax. Sometimes the right answer is to sell the stock and accept the tax.

The recommendation

Fund the down payment in the order that preserves the most liquidity and realizes the least tax. A gift from family that intends to transfer wealth is usually the most efficient source, because it reduces the mortgage, keeps your portfolio invested, and triggers no capital gains. A family loan is a reasonable second when the family wants repayment, as long as it is priced at or above the AFR and documented. Selling appreciated stock is the right move when you need to diversify a concentrated position anyway, and you should size the sale knowing the tax it costs.

Across all three, family help is a risk-reduction decision, not an investment-maximization one. The purpose is to lower how much the household depends on a strong stock price and an uninterrupted career to keep the house. A purchase that needs the gift to be affordable is a purchase to reconsider, not to fund.

Frequently asked questions

How much can my parents gift toward a down payment tax-free?

For 2026, $19,000 per parent per recipient is excluded with no filing. Two parents can give a married couple $76,000 in one year. Larger gifts are still almost always tax-free; they require a Form 709 and draw against the $15 million per-person lifetime exemption, which most families never approach.

Is it better to get a gift or a family loan?

A gift if the family intends to transfer the money: it reduces the mortgage, preserves your liquidity, and creates no repayment. A loan if they want to be repaid: it offers a below-market rate but leaves you owing the principal and generates taxable interest for the lender. Choose based on intent, and do not disguise a loan as a gift.

What rate do I have to charge on a family loan?

At least the Applicable Federal Rate the IRS publishes monthly. The June 2026 long-term AFR was 4.87%. A loan below the AFR can trigger imputed-interest rules, where the IRS treats the foregone interest as taxable income to the lender.

Should I sell my RSUs to fund the down payment?

Sometimes. Selling concentrated employer stock to diversify is often prudent on its own, and using the proceeds for a down payment is a reasonable place to put them. But selling realizes capital gains at up to 23.8% federally, so weigh the diversification benefit against the tax, and prefer a gift if one is available and the stock is already well-diversified.

Does a bigger down payment help my path to FIRE?

Only if it does not drain liquidity you need. A larger down payment lowers the mortgage and the carrying cost, which lowers your FIRE number, but it converts liquid investments into illiquid home equity. Funding the larger down payment with a gift, rather than by selling your portfolio, captures the lower carrying cost while keeping your capital invested.

Key takeaways

• The funding decision is separate from affordability. Decide how much house and how much down first, then decide where the cash comes from. They are different questions with different inputs.
• Selling appreciated stock is not free. Long-term gains cost up to 23.8% federally for high earners, plus the loss of tax-deferred compounding. A $250,000 sale with a 50% gain runs about $30,000 in tax.
• A gift is usually the most efficient source. It reduces the mortgage, preserves your liquidity, and avoids capital gains. The $19,000 annual exclusion is a paperwork line, not a tax cliff, against a $15 million lifetime exemption.
• A family loan is a rate play, not a transfer. Price it at or above the AFR, document it, and remember you still owe the principal and the lender owes tax on the interest.
• Family help should reduce risk, not enable a stretch. If the gift or loan is what makes the house affordable, the house is too expensive.

Related guides

• How Much to Put Down on a House covers the sizing decision: PMI thresholds, loan buckets, cash to close, and post-close reserves.
• Are You About to Be House-Poor? stress-tests the payment against an RSU drawdown and a layoff before you commit.
• Equity Compensation Tax Strategy covers RSU vesting and the sell-vs-hold decision behind funding a purchase from employer stock.
• Concentration Risk explains why selling employer stock to diversify can be worth the tax bill.
• Rent vs. Buy runs the parallel simulation that decides whether to take on the mortgage at all.

Sources

1. Freddie Mac. Primary Mortgage Market Survey. Average 30-year fixed-rate mortgage near 6.5% in mid-2026.
2. Internal Revenue Service. Topic No. 409, Capital Gains and Losses and Net Investment Income Tax. 2026 long-term rates 0%/15%/20%, with the 20% bracket above $613,700 for married filing jointly; 3.8% NIIT above $250,000 MAGI.
3. Cocco, João F. “Portfolio Choice in the Presence of Housing,” Review of Financial Studies (2005); and Chetty & Szeidl, “The Effect of Housing on Portfolio Choice,” NBER Working Paper 15998. Housing commitments crowd out equity holding; mortgage debt reduces the stock share of liquid wealth.
4. Internal Revenue Service. What’s New, Estate and Gift Tax. 2026 annual gift exclusion $19,000 per recipient; lifetime estate and gift exemption $15 million per person.
5. Fannie Mae. Selling Guide B3-4.3-04, Personal Gifts. Gift funds may be applied to down payment, closing costs, and reserves; a signed gift letter must confirm no repayment is expected.
6. Internal Revenue Service. Revenue Ruling 2026-11, Applicable Federal Rates for June 2026. Long-term AFR (annual) 4.87%.
7. Internal Revenue Service. Publication 550, Investment Income and Expenses. Below-market loans below the AFR can be treated as carrying imputed interest.
8. Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction. Acquisition-debt limit of $750,000 for loans taken after 2017 ($375,000 if married filing separately).
9. Morningstar. The State of Retirement Income for 2026. Estimated 3.9% safe starting withdrawal rate for a 30-year horizon at 90% success.