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gifting a houseIf you’re lucky, you’re given a great many gifts in your life. Sometimes these gifts are material things like a Buzz Lightyear action figure or an Easy Bake Oven that was used exactly once before both you and your parents realized it was just easier to bake an actual cake in a real oven.

Sometimes you’re given the gift of knowledge. I’ve had at least five excellent teachers and mentors that had an enormous influence on my writing and what I’m doing today.

The gift can even be a good friend who has seen you both laugh and cry – someone who’s always there.

You may think of all these things as great gifts you’ve obtained over the course of your life, but did you know the down payment on your house can be a gift? It’s true.

In this post, we’ll go over how you can use gift funds to help fund your down payment or other mortgage-related costs.

Who Can Give a Gift?

Before we go over the different types of gifts and what they’re used for, we first need to discuss where the gift can come from. For Fannie Mae, Freddie Mac, jumbo and VA mortgages, the gift must come from a member of your immediate family (including your spouse, domestic partner or fiancé) or close extended family (grandparents, aunts or uncles).

With an FHA mortgage, the gift can come from any of those sources or the following:

  • A close friend who wants to see you do well
  • An employer
  • A labor union
  • A government agency
  • A public entity such as a nonprofit that provides homeownership to families of low to moderate income first-time home buyers

You can use this search engine to find nonprofits that provide FHA assistance in your area.

Gift Requirements

There are two types of gifts that your relatives or contacts can provide: a cash down payment gift or, in the event a family member is selling the property to you, a gift of equity. In each case, the funds may be used for the down payment, closing costs and prepaid interest points. Depending on the type of loan, you may also be able to use the gift in order to pay off debts so you can qualify for your mortgage. In certain situations, a client has to have a certain amount of payment coming from their own funds:

  • A 5% contribution is required on certain conventional loans if the down payment is less than 20%.
  • There’s a required 5% client contribution on all jumbo loans.
  • If your credit score is between 580 and 619, 3.5% of your FHA down payment has to come from your personal funds.

Show Me the Money: Cash Down Payment Gifts

A cash down payment gift is pretty straightforward. You get money from one of the sources above and use it toward your down payment and costs. There are a couple of things your lender will need from you in order to use the gift:

  • A gift letter (including, among other things, the amount of the gift and a statement that it doesn’t have to be paid back)
  • Evidence of the transfer of funds

You can show evidence of the transfer with the donor’s withdrawal slip and your deposit slip, or a copy of the check and evidence that it’s been deposited into your account. If the gift is made at closing, there must be a copy of the donor’s certified check and a settlement statement with the exact amount of the gift.

For FHA loans coming from a family member or close friend, some additional documentation is required.

We need a copy of the canceled or certified check. We also have to be able to verify that the donor had the money for the check in the account for at least 30 days prior to the gift. This is verified through bank statements.

If the donor borrowed the funds, they need to be able to document the source. The gift cannot come from cash the donor has on hand.

The Family Discount: Gifts of Equity

A gift of equity occurs when someone (usually required to be a family member) sells you a property for below the sale price. The difference between the price you pay and the listed price is considered an amount of equity to be used toward your down payment or to help pay off debt to qualify. It can also be used toward your points and closing costs.

On FHA loans, a client can also get a gift of equity from a nonprofit agency or his or her in-laws.

Gifts of equity are not allowed on VA and jumbo loans.

In order to use the gift of equity, a client must include a gift letter, just as if they were being given a cash down payment. Minimum client contribution requirements still apply as well.

That’s the lowdown on down payment gifts. If you still have questions, let us know in the comments.

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This Post Has 164 Comments

  1. My mother owes 70,000 on the home she is selling me for 80,000 (so I can get 10,000 back for remodel). Home is appraised at 190,000. I know I can use my gift of equity to pay for closing cost and any money down BUT is the % down based on the selling price (80,000.00) or the appraised value (190,000) ?

    1. Hi Mary:

      The down payment percentage is the sale price relative to the current market value. In effect, you have a 42% down payment. Hope this helps!

      Kevin Graham

      1. Hi Kevin, I’m in a similar situation as Mary. But it’s a transaction between siblings. Are you saying that Mary would not need to put any money down? Also, what would the sale price be? will it be $80k or will it be the $190k?

        1. Hi Rick:

          If you get a gift of equity on a one-unit primary property with an FHA or conventional loan, you don’t need to contribute any of your own money as long as the gift is equivalent to at least the minimum down payment. The sale price would be $190,000 in Mary’s situation. The amount of the gift of equity you’re getting is accounted for in the accompanying gift of equity letter. Hope this helps!

  2. Hi Kevin,
    We are purchasing my mother in laws home, she is selling it to us for $220K and it’s worth $260K. She currently owes $160 but my question is, since it will be an FHA loan, do we will need to have mortgage insurance?

    1. Hi Roxanna:

      So the discount on the value does count toward your down payment. However, because it’s an FHA loan, even though your down payment is more than 10%, you still have to pay mortgage insurance for 11 years. It’s a federal government requirement.

      Kevin Graham

  3. A family member has passed away and their domestic partner was given a gift of equity. My question is what happens if they do not use the gift of equity towards the purchase of the house if they have not received the actual distribution or check first. The distribution on the estate has not happened yet however he has closed on the property. So how does that play into the fact. Does that gift of equity become null and void?

    1. Hi Barb:

      I’m honestly not sure of the answer to that question. One of our Home Loan Experts may know more. Tomorrow, the company is off for Memorial Day, but you can get in touch with someone on Tuesday by calling (888) 980-6716. They may be able to give you more insight.

      Kevin Graham

  4. Is this correct? A gift of equity isn’t real money. It must be added to the cost of the mortgage.
    My brother is selling me a house that appraised at $168,500 for $126,500. That $42000 worth of equity is available to use for down payment, closing costs, etc, BUT however much of it is used MUST be added to the amount of the mortgage. Money isn’t free – the equity to borrow against is the gift. Am I right or all wet? Thanks!

    1. Hi Tim:

      I don’t think I’ve ever been happier to tell someone they’re wrong. Your brother is choosing to sell to you for a reduced price. Therefore, it wouldn’t have to be added to the mortgage. Your brother’s only obligation is to pay off whatever existing mortgage he had on the property. If you chose to give whatever profit he would take back to you, that’s his choice. It’s free money. Hope this helps!

      Kevin Graham

  5. Hi guys I have a question. my husband is buying a house under his name. Can I take home equity loan out on my house which is under my name only and gift him the down payment for the purchase of new home which will be under his name?


    1. Hi Johary:

      That’s something you could do. If you were getting an FHA loan, you would have to provide the loan documentation and the HELOC would have to come from a different lender because the entity gifting the funds can’t be party to the mortgage transaction, but it is possible.

      Kevin Graham

  6. Does my parents mortgage debt need to be paid off before they can give me a gift of equity. They have about 20 years paid into their 30 year mortgage.

    1. Hi Mike:

      The only requirement when giving you a gift of equity is that you pay enough to pay off the outstanding balance on the mortgage. Once that’s paid off, they have the option to give you whatever equity is left over.

      Kevin Graham

  7. How does receiving a gift of equity affect tax basis when I later sell the home?

    My situation: dad sells me the house at fair market value $520K, with a gift of equity of $120K; so I have just a $400K loan, no down payment (more than 20%).

    In 10 years when I sell the home, what is my tax basis for determining capital gains?
    is it a) the full sale price including gift of equity $520K
    b) the effective purchase price of $400K (market value minus equity gift)
    c) my dad’s original tax basis (which is very low)
    or something else?

    Thanks in advance. Doing the deal, just considering what the tax implications are.

    1. Hi Reno:

      Unfortunately, for most tax questions including this one, you’re really better off talking to an accountant or tax professional. It’s also worth noting that it’s hard to say what the tax law will look like by the time you sell the property. That said, I would definitely talk to a tax expert.

      Kevin Graham

      1. Ok, taxes I have figured out.
        Now A LOAN question:
        I am in the middle of writing a purchase agreement with gift of equity from my father.

        How do I write the purchase agreement for a gift of equity?
        Is the Purchase Price the actual amount you’re buying for
        Purchase Price $400K
        Gift of Equity $100K
        Appraisal Value $500K
        This is how the IRS accounts for a part gift – part sale because you are not purchasing for 500K, that is a ficticious number and not taxable or usable by the seller.

        With this structure can your loan processing figure that the loan LTV (80%) and down payment is based on appraisal value because it is a family sale with gift of equity?

        Or, because of loan technicalities does it need to get written as
        Purchase Price $500K (appraisal value)
        Gift of Equity $100K
        Actual sale price $400K?

        Fannie Mea/FHA don’t seem to have details; only that a 20% gift is allowable and means no down payment; they don’t explain purchase price appraisal value, or how the gift is calculated or if it needs to be in the purchase agreement.

        1. Hi Reno:

          I’m going to recommend you speak with one of our Home Loan Experts to make sure this all goes smoothly. Based on our guidelines, it doesn’t look like the gift of equity has to be placed in the purchase agreement. Those are details you work out with the lender. The fastest way to get the best information on this specific to your situation is to call (888) 980-6716.

          Kevin Graham

  8. Hi,
    My parents gave me $10,000 as a gift down payment on a conventional condo loan last year and were told they can use that to write off on their taxes. They are now told they can’t do that since they didn’t put down $14K. I’m confused since I read up to $14K they can write off??


    1. Hi Janice:

      I believe they can write it off, but I would find a qualified tax professional. Because every situation is different.

      Kevin Graham

  9. my mom wants to sell me the house for 300.000 the house still has about 120.000 that she still needs to pay.

    the house is worth 400.000

    can i get a loan for 300.00 pay off the house and give her the rest (180.000)

    1. Hi Ester:

      In theory, that’s how it works. I’m going to recommend you get started by talking to one of our Home Loan Experts about this by filling out this form or calling (888) 980-6716. They’ll be able to go over the details and help you out.

      Kevin Graham

  10. I am selling my house to my daughter for far less than the appraisal amount. The home is worth (according to Zillow) $447000. I’m selling it my daughter for $299000. I owe $239000. Can the equity in the house be used as a down payment and closing costs? And is it taxable to either one of us? What would be the loan amount my dauggter should apply for? She does not have the funds for a down payment

    1. Hi Tammy:

      A gift of equity may be used toward the down payment and/or closing costs on the home. There’s the possibility it could be taxable, but that depends on your situation. For that advice, we would really recommend going to a tax professional. Loan amounts are based on how much she could be preapproved for and I can’t give you an answer to that in the comments. I’m going to recommend you have your daughter speak with one of our Home Loan Experts by filling out this form or calling 888-728-4702. They’ll be able to go over her situation in greater detail.

      Kevin Graham

  11. My cousin wants to give my wife and I $5000.00 toward our down payment. If we plan to use a FHA loan, will we need to still provide the entire 3.5% or the reminder after the $5000.00 is applied?

    1. That depends on your credit score. If your credit score is between 580-619, you have to contribute 3.5% toward your down payment from your own funds. And then your cousin’s funds would be added on top. Otherwise, the funds from your cousin can be applied and you will just have to make up the difference to get to 3.5%. Hope this helps!

      Kevin Graham

  12. Hey Kevin, We are buying a house and have family members who want to give a gifts but don’t want to disclose there whole bank account statement. It’s an FHA loan..what other options do they have? Shouldn’t a gift letter be enough?

    1. Unfortunately, the FHA has very specific guidelines on this point. Bank statements are required to prove where the funds are coming from.

  13. My fiancé and I are looking at buying her parents house this coming year . We are first time home buyers and they would also be selling us the house for $40,000-$60,000 below what it was appraised at . My question is will that amount be considered the gift of equity ? And can any of that amount be put towards the down payment and closing cost ? Will we have to have any contribution out of our pocket starting off? Thanks !

    1. Hi Brian:

      Yes, the amount they are discounting the sale price would be considered the gift of equity. It can certainly be put toward down payment and closing cost. Whether or not you need to come out of pocket for anything else depends on a couple of things: the ratio comparing the amount of the loan to the value of the house and potentially your credit score. To give you more concrete answers, you would have to talk to Someone. I’m going to recommend you reach out to one of our Home Loan Experts by filling out this form or calling (888) 728-4702.

  14. My husband and I are purchasing his mothers home and she’s wanting to gift us the equity from the difference from the sale price and what she’s going to except for her self. She wants to gift us the equity to pay off her debt so we can get the loan easier what loan qualifies that . Is this something we can get threw quicken loans.

    1. Hi Krystal:

      We can definitely help you look into your options as far as a gift of equity is concerned. To get into the details and what you might qualify for, you’re going to have to talk to one of our Home Loan Experts. You can get in touch with them by filling out this form or calling (888) 728-4702.

      Kevin Graham

  15. My parents and I want to trade houses with each buying the others for the amount of the outstanding mortgages. Both houses will appraise for more than the mortgage amounts. We all have excellent credit. Can the gift of equity be utilized in both directions? Is there additional funds/fees that would be required by either party? And how would this be handled? Thanks.

    1. Hi, Niki!

      This is definitely a unique situation and to determine if it’s possible, you’ll need to speak to one of our home loan experts. Give us a call at (888) 635-1576.

      Thanks and have a great day!



  16. how much money can i gift to my daughter and son-in-law? received my mother home as part of my inhieritence $33000. will they have to pay taxes on this?

    1. Hi Paul:

      The gift tax limit is $14,000 according to the IRS. Typically, you would pay the tax unless your daughter and son-in-law agreed to some other arrangement. Hope this helps!

      Kevin Graham

  17. My father wants to give me a gift of equity to purchase his home which is in a Reverse Mortage. He owes 325k on the home and it should appraise for 400k+. Will the mortgage reflec the gift of equity as equal to a down payment of 75k , so that my mortgage payment is reflecting a “down payment” of 75k? Or will it reflect an amount of a loan without a down payment, but just act as collateral?

    1. After the reverse mortgage is paid off, your father can gift you whatever remaining equity he has and it acts as the down payment. Hope this helps!

  18. Hi Kevin, we are working with quicken right now on a conventional loan. My mom gifted us over 20% down. Quicken is requiring HER bank statements although everything I’m reading here and other places says that donor bank statement are only req’d for FHA loans. My mom is unwilling to release her bank statements for privacy reasons but is willing to provide any other proof (that isn’t so invasive). Who can I talk to about the requirements?

    1. Hi Jen:

      I’m going to have someone contact you. We’ll see what’s going on here and how we can help you move forward with the process. I can tell you that we treat all client provided information with the strictest confidence. We have a number of security measures in place. We take client privacy very seriously.

      Kevin Graham

  19. My mother is giving me the deed to her house. She was given the deed by her mother. My question is, can I get a loan to pay off some debt that I have to improve my credit score? I want to pay off my car and some outstanding collection items on my credit report. I also owe some money to a couple of friends. Thank you for any information you may have.

    1. Hi Melissa:

      We can certainly help you look into your options. I’m going to recommend you talk to one of our Home Loan Experts because collections may present problems depending on the type of loan you want to go with. Also, you may have to be on the title for a period of time before you can take cash out. You can get in touch with them by filling out this form or calling (888) 728-4702.

      Kevin Graham

  20. Dear Kevin,
    My wife and I are in the process of being gifted a house from titled to our son and her niece. House appraises for 360K and Mortgaged for 168K. We are receiving an equity gift for 20% down and full closing with a sales contract for 217.5K ending in a mortgage of 174K.

    My question is, can the sales contract be say 352K and the equity gift includes an additional100K which go to the buyers at closing for a cash out Mortgage of 274K ?

    This essentially provides a total gift for donors tax purposes of 170K+ to be used for the annual limit and life time gift exclusion.

    1. Hey Steven:

      That’s a very good, but also very complex question. My advice is to talk to one of our Home Loan Experts. They’ll be able to give you better advice than I can on this issue. In terms of the tax portion, you may actually be better off talking to an accountant or someone that specializes in tax issues. If you would like to speak to someone regarding the gift and the purchase agreement, you can do so by filling out this form or calling (888) 728-4702.

      Kevin Graham

  21. You make it sound so easy… We are going through USAA for or mortgage (mistake). They walked us through the process of a gift of equity but come closing the loan was so messed up the title co literally left.

    Our condo is valued at 195,000 and our parents are selling it to us at 125,400. The gift of equity should be more than enough to cover a down payment according to your article. USAA is under the impression that the gift of equity cannot be used for this and is only a figurative number we receive after purchase.

    I’m confused

    1. Hi Robert:

      It’s possible that different mortgage companies have different policies. With us, a gift of equity is able to be used toward the down payment unless you’re doing a VA or jumbo loan. There’s a minimum client contribution in certain cases, but you can still do the rest as a gift of equity. I highly recommend you talk to one of our bankers who can help go over your situation and talk through any potential options. You can do that by filling out this form or calling 888-728-4702.

      Kevin Graham

  22. My mother in law wants us to buy her house. It appraises for $253900. She owes 138500. She is going to sell it to us for what she owes, how do we use the gift of equity? We also have a lower credit score due to issues from 2010. Can we get a loan? Thx

    1. Hi Kim:

      Given your situation, I’m going to recommend you talk to a mortgage banker. They can go over how to set up the gift of equity and also look into your credit qualifications. You can go ahead and fill out this form or if you want to get started over the phone, call 888-728-4702.

      Kevin Graham

  23. The home we are purchasing is from a long time family friend. FHA guidelines have loan limits of $271,000 for our area. Home purchase price we have agreed on is $300,000, and appraises for $325,000. Can they do a gift the of equity? And how does that work with the home appraising higher than FHA loan limits. Would 3.5% downpayment be on $271,000 or appraised price of $325,000?

    1. Hi Rhonda:

      Since this is a friend and not family, they can’t do a gift of equity. They can only do a down payment gift. This also gets a bit complicated because of the limits involved. I’m going to suggest you talk to one of our licensed mortgage bankers. We can put you in touch with a mortgage banker if you fill out this form.

      Kevin Graham

  24. We are getting a gift equity to buy my mother in-law house ( she is decease ) the FHA loan is going to be on my name I qualify for it my question is do I have to be on the title my husband is, to get the FHA loan? Is a cash out we need to pay the two other brothers

    1. Hi Donna:

      If the loan is in your name, you need to be on the title. Hope this helps!

      Kevin Graham

  25. Are there any tax consequences to either the giver or the receiver, especially with a gift of equity? IRS only allows a gift of $14,000 per individual giver.

    1. Hi Kathryn:

      On the mortgage/house selling side, there really aren’t any consequences for giver or receiver. In terms of tax consequences, you’re better off speaking with a tax adviser. In addition to the federal tax issues, there may be different requirements depending on what state you live in.

      Kevin Graham

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