The Gift of Equity: Buying From Family
When you buy a home from a family member who sells it to you for less than it is worth, the difference between the market value and the sale price can serve as your down payment. It is called a gift of equity, and it is one of the most elegant ways families transfer a home.
How it works
Say a parent’s home is worth $400,000 and they sell it to you for $360,000. That $40,000 difference — 10% of the value — can count as your down payment, so you may need little or no cash of your own to close. The home appraises at full value, you buy at the discounted price, and the equity gap does the work.
What it requires
- A gift-of-equity letter documenting the relationship and the gifted amount.
- An appraisal establishing the true market value.
- A purchase contract reflecting the agreed price.
- Awareness of tax considerations for the giver, worth a quick word with a tax professional.
A gift of equity can let a family member buy with little cash out of pocket and skip mortgage insurance if the gifted equity reaches the 20% threshold. If a parent is helping you into a home they own, ask us how to structure it before you sign anything.