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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. I hope you all can help me, before I make a mistake or lose out on something.

    right now I am going to purchase a home from a family member. valued at 300k. Purchase price 185,000

    What is the max gift of equity to be used as a downpayment – .. could i use the full 115 k and only have to have a loan of 70k? to make the purchase. .. with family member getting 185 k.. the purchase price. I hope this finds someone soon. Thank you in advance

    1. Hi John:

      I think there’s a little misunderstanding of the way a gift of equity works, but I’m happy to clear that up. The difference between the $185,000 and the $300,000 that the home is valued at is the gift of equity. That’s what counts as your down payment. So your loan amount in that case would be $185,000. The only way to have a $70,000 loan would be if you brought another $115,000 as your down payment contribution. So the loan amount is actually a little bit higher than what you’re thinking. However, that still brings you into the transaction with a ton of equity and will help with your interest rate. If you would like to go over your options, you can get started online with Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716.

  2. Hi,
    #1 – Is there an amount limit on a gift of equity parents can gift to a son if he wishes to apply for a FHA loan for the first time? I wish to buy a property from my parents which is all paid-for (no mortgage or debts on it) . The property is not their principal residence. Property was appraised for $275,000 and they are considering a gift of equity in the amount of $75,000.
    #2 – I have a brother. Would it be necessary for him to agree with this gift in writing as the proceeds from the sale of my parents’ property may be considered as an expectation of his future inheritance?

    1. Hi M.:

      I’m going to take these in order.

      1. There are no limits on a gift of equity for an FHA loan.
      2. Your brother’s inheritance has nothing to do with your mortgage transaction, so no.

      If you would like to look into your mortgage options, you can do so online with Rocket Mortgage. You can also speak with one of our Home Loan Experts at (888) 980-6716. I hope this helps!

  3. The article mentions using a gift of equity to pay off debt. I’ve been told that I have too much student loans and credit card debt to qualify given my income. My parents would be willing to sell me one of their properties for very little if I could qualify for a mortgage.

    How would I use the gift of equity to pay off debt to qualify? Thanks ~ Ty

    1. Hi Ty:

      You can let your lender know the amount of the proposed gift and they would be able to do the calculations to see what would happen if you were to pay down your debt. In your case, I recommend speaking with one of our Home Loan Experts at (888) 980-6716 to go over the specifics of your situation.

  4. HELLO.
    My parents are considering selling us their house. The house is paid off, no mortgage or loan of any type. I do believe they are behind on taxes, though.
    So, let’s assume the house is worth $450,000. Since it needs work and they have alternate housing (aka, won’t need to buy something else) they have mentioned accepting $200,000 from us.
    That would be a gift of $250,000 in equity. Obviously that’s more than a down payment’s sum because it’s more than the price of the sale. Could we use some portion of the equity towards the down payment and then use the rest towards necessary/costly renovations? Also, the taxes owed, can it be applied to that cost?


    1. Hi AC:

      Typically, any back taxes would be paid by the seller, your parents, out of the $200,000 you’re going to give them. You should talk to one of our Home Loan Experts about your options for purchasing and doing renovations at the same time. You can fill out some basic information online or contact them at your own convenience by calling (888) 980-6716. Thanks!

      1. Ok thanks.
        But for the time being could you answer at least part of the question–with the sum of gifted equity being larger than the price of the sale, how does this work being that it more than suffices for the down payment?

      2. Hi AC:

        You can’t use the gift of equity itself toward anything other than the down payment and closing cost. However, the fact that you would have more equity in the home when you get your renovation loan makes the loan smaller and the overall cost of the loan should be much lower. I hope this helps!

  5. Hello,
    What is the constraint on how low you set the “sales price”? It seems that the lower you set the sales price, the farther the potential gift of equity goes, and thus the less you have to put down.
    For example, say my grandfather can only give me $15k of equity for tax reasons. If you set the sale price of the home at 200k, then you can use the $15k gift of equity as part of the down payment, and then pay $25k out of your own funds to get to 20% equity to avoid PMI. But if you change the sale price to $150k, you only need to come out of pocket with $15k to get to 20%.
    It can’t be as simple as simply “declaring” on a form that the sale price is $150k even if the FMV is higher, right? Would the IRS potentially audit something like this and make the donor declare the actual size of the gift?

    1. Hi Ken:

      I’m going to first let you know that we are not tax experts. That being said, property does have a fair market value and the difference between that value and the sales price agreed upon would be the gift. With that said, the lifetime gift and estate tax exclusion limit is $11.4 million for an individual and $22.8 million for a married couple filing jointly. In other words, while the gift may have to be reported to the IRS, it’s highly unlikely the donor would ever end up paying taxes on it either during their lifetime or out of their estate unless we were talking about a whole lot of money. I hope this helps!

  6. Grandma Passed away in April of this year 2019. The home has no mortgage owed. Father inherited the house thru the Estate and is selling to my wife and I , how much can he gift equity to us, Washington State, and the home value is estimated at $410,000.00 we agreed on a purchase amount of $360,000.00 , what possibly could be tax implications for gifting that much equit?

    1. Hi Eric:

      I’m sorry to hear about your grandma. You have my condolences.

      From a gift of equity standpoint, your father can gift you as much equity as he wants. The only consideration you might need to take into account is making sure that he gets enough out of the sale to pay off any existing mortgage or other liens on the home. In terms of tax implications, since the gift is above the IRS limits for reporting, it will have to be reported. The way this works is that there’s a lifetime limit to how much can be gifted or inherited through an estate before taxes are paid on it. That limit is currently $11.4 million, so the odds on coming anywhere near it are pretty low. If you have any specific tax questions, we recommend speaking with a tax adviser.

      If you would like to go over your options for a mortgage, we can help you get started online with Rocket Mortgage or you can give one of our Home Loan Experts a call at (888) 980-6716. Have a great day!

  7. Hello, I’m interested in buying my parents home and I’m wondering if they have to own it outright (as in paid off) to give a gift of equity. The home values for $400k and they owe $170k so they have alot of equity. I was told by someone that the gift of equity was only possible when the house is owned out right. Is this true?

    1. Hi Jacob:

      You’ve been given the wrong information. It’s totally possible for your parents to give you a gift of equity. The only thing is that they’ll want to make sure the selling price is at least enough to pay off the balance of the loan. If you would like to go over your options, you can do so online with Rocket Mortgage or give us a call at (888) 980-6716. Have a good day!

  8. Hi,
    My parents are selling me their home for 200k. It was appraised for 500k. They have already paid off the home. My lender said they can gift me the equity. What does that mean? What happens if they do not “gift” me the equity? What can they do with the equity themselves?

    1. Good morning, Sharon:

      If they gift you that equity, it means you’re getting part of the value they’ve already built up in the home to be used toward your down payment and closing costs. In this case, they’re gifting you 60% of the value of the home.

      If they don’t gift you the equity, there wouldn’t be a benefit to them because they’re still selling the house, but they’re doing so at well under market value. Typically, you would take out a mortgage or home equity line of credit in order to access the existing equity in the home and use it for repairs, remodeling or any number of other investments. However, since they are selling the house, they won’t be taking out another mortgage. Therefore, the only benefit would be to give you the gift of equity. This helps you because the higher your down payment is, the better your rate.

  9. Im looking to buy my parent’s property from them because they have recently suffered some health issues where it’s increasingly difficult for them to maintain the property physically and monetarily.

    Let’s say we agreed on the sales price of $600,000. They can then gift a gift of equity for 20% at $120,000. This would bring the balance of the sale to $480,000. Given the fact that my our loan amount is then $480,000 can I then pay an additinal 20% ($96,000) of the $480,000? Would that be considered as 20% down? Or would that be considered as just paying the interest and principal off my 20%? My goal is to lower my monthly mortgage as low as i can. Is this all feasible? And would would my monthly mortgage be in this case?

    1. Hi Crystal:

      I’m going to kind of deconstruct this backwards a little bit and start with the last question. It’s not possible for me to tell you what your monthly mortgage payment would be because it depends on your interest rate as well as what you choose for a mortgage term. That said, you can check out our rates page. I’m then going to give you our amortization calculator where you can put in a hypothetical interest rate and term and see what your monthly payment would be.

      Equity is calculated based on the initial sales price. Therefore, when your parents bring the sales price down to $480,000 because you’re a family member, that difference in the market sales price and the family discount actually functions as a 20% down payment for you. Since your down payment is calculated based on the initial sales price of $600,000, bringing an additional $96,000 to the table would make your total down payment 36%. This is all feasible.

      If you would like to get started, you can do so online with Rocket Mortgage® or give one of our Home Loan Experts a call at (888) 980-6716. Have a great day!

  10. Our house appraised for 500,000. We sold it to our kids for $398,00, seven thousand more than we paid for it. Now it is tax time. The title company has listed the purchase price of the house as 500,000. With 110.000 in gift funds. And we are being taxed on those funds. Is this correct? I think I need a tax attorney?

    1. Hi Karen:

      If you’re actually being taxed on the gift, I would talk to a tax attorney. What I think is happening is that you have to report that you made the gift to be counted against your lifetime limits of what can be excluded from gift tax. Basically, you have to report gifts over $15,000, but bigger gifts are just counted against your lifetime estate tax limits which for joint filers is $11.18 million. Basically, unless you’re making huge gifts, you shouldn’t be taxed. You can find more information here.

  11. Hello,

    I’m debating if the gift of equity will be worthwhile in my position. I’m purchasing a condo for 115k from family, and for discussion’s sake, we could assume the fair value is 10k more (125k).

    If I already have 20% down in my own money, is it worthwhile for me to use the gift of equity since it will essentially raise my overall mortgage?

    1. Hi Bob:

      It shouldn’t raise your overall mortgage. The difference between what your family sells it to you for and what they can get from other buyers on the open market at the appraised price goes toward your down payment. If anything, it should lower your monthly mortgage payment because you have a smaller loan to pay off. If you would like to go over your options online, you can get started with Rocket Mortgage. You can also feel free to give one of our Home Loan Experts a call at (888) 980-6716.

  12. My fiance and I just got engaged. She is buying the house I live in from my brother and I am wondering if she qualifies for a gift of equity from my brother to help the purchase process? She is buying this house without my name on the application.

    1. Hi Jim:

      Depending on the type of loan she gets, it’s possible that your brother can give her a gift of equity as her future in law. However, I highly recommend you have her speak with one of our Home Loan Experts at (888) 980-6716. They would be able to fully go over the options. Have a wonderful day!

  13. Can a gift of equity come from a Trust? All the members of the trust are relatives.
    Me and my wife are trying to buy her grandmas house wich is in a trust. Her mom and uncles agree on give us a gift of equity, but we were advise that it can not be from a trust. It that accurate?

    1. Hi Jorge:

      The property has to come out of the trust before we can help you with a mortgage on it. So the answer is yes. That said, there are ways we can help you through the process. I recommend speaking with one of our Home Loan Experts at (888) 980-6716 to go over your options.

  14. Hello,

    We are in the process of buying my Sister’s home from her. 250,000 is what is stated as the sales price. with our 3.5% down(Gifted by our parents), it takes the loan to 241250. House has not been appraised but local assessment shows 252000 and fair market shows 276000.
    Pending inspection and appraisal of course..
    1. Does the Gift of Equity bring down the amount financed?
    2. if so/not, how does this affect the financing of the mortgage?

    1. Hi Aaron:

      1. Yes.
      2. This gets to the heart of your question. If you can get your sister to sign a gift of equity for you, this would be included in your down payment which would effectively make your down payment larger. Assuming it comes in at the fair market value you’ve hypothesized, your total down payment would be about 9.42%. If the gift was slightly larger, your total down payment could be 10%. If you make a down payment of 10% or more, you would only pay FHA mortgage insurance premiums for 11 years as opposed to the life of the loan, so there’s theoretically a big incentive for you to come up with a slightly higher down payment. If you want, I would recommend you call one of our Home Loan Experts at (888) 980-6716 as they can go over your options in detail.

      1. Follow-up questions:

        1. Would my sister still be paid 250k for the home as originally agreed?
        2. My overall mortgage would be the 250k minus whatever down payment(Equity/ash Gifts)? (Excluding fees and closing)

        Thank you.

  15. My mother and her boyfriend bought a home a few years ago. Last summer my mother died, leaving her boyfriend as the surviving mortgage holder. He can not afford the home and wishes to sell it to me. He is offering to sell to me only for what he owes, which is approximately $87k. The home is valued at $100k. Can he gift me the equity and then apply that towards a down payment, closing costs, and points on an FHA loan? Thanks

    1. Hi Jim:

      Unfortunately, the FHA has fairly strict requirements that the gift of equity would have to come from a relative. Because your mother and her boyfriend were never married, he isn’t technically related to you. I would recommend you speak with one of our Home Loan Experts as they may be able to go over other possible loan options with you. They can be reached at (888) 980-6716. Thanks for reaching out!

  16. Hello and ty for your time my husband and I have two rental properties one is in my name one is in his name we would like to sell one to our daughter he purchased the house for 78 thousand and we would sell it for 55 thousand to her !} can we avoid capital loss by reinvesting in another ? 2} Do we put the money into investing in the other property Im pounding my head reading so much im over whelmed . This house is in my husbands name do we first move it to both of our name so we can both gift her ??? thank you for any response I appreciate you sincerely

    1. Hi Monica:

      In terms of the capital gains thing, you might be best off speaking with a tax adviser to determine the proper way to go about this. However, I can tell you that it doesn’t matter for the purposes of the mortgage whether one of you gifts the property to her or you both do. The only thing I can see that affecting is the yearly gift limit. You can gift your daughter up to $15,000 per year without it counting toward your lifetime estate gift limit. That limit is currently $11,180,000 per person, so a couple could gift up to double that amount. I would speak with a tax person, but I hope this helps.

  17. Hi question regarding the gift of equity. If purchase price is 204,730.00 but the relative selling only is going to get 174000. Because she’s gifting 30k to grandchild to use as down payment. Is this really only a paper transaction? And does the house have to appraise for the full 204k or more?

    1. Hi Lily:

      I’m going to take the easy one first. No physical money is changing hands, so in that sense, it’s a paper transaction.

      The appraisal can matter. For the purposes of mortgage insurance, with a conventional loan, if the down payment including the gift of equity is less than 20%, you could end up paying mortgage insurance for a while. Also, if it’s an FHA loan and she isn’t buying the relative’s primary residence, they have to have at least 15% down including the gift of equity. If it’s a primary residence, the minimum down payment on FHA this just 3.5%. This means that the appraisal has to come in so that the gift of equity ends up being sufficient to stand in for a large enough down payment to cover the 15%. If they don’t, they may need to bring money to the table. I hope this helps!

  18. I’m trying to buy my cousins house, the Loan officer said we could do a gift of equity, I was going over the paperwork to sign and in the section for gift of equity a cousin is not defined as a family member so we can no longer go this route, however the gift of equity is still built into mortgage… I need advice!!!

    1. Hi Jennifer:

      Lenders may have different policies depending on whether they are the ones ultimately backing the mortgage. If they aren’t the ones who will ultimately be insuring the mortgage after you close, it depends on the mortgage investor. If you’re getting a conventional loan backed by Fannie Mae or Freddie Mac, a cousin is allowed to give you the gift of equity. If it’s an FHA mortgage, your cousin can’t give you the gift. If the gift of equity is unworkable, you may have to restructure the transaction, but your lender should have caught that up front.

  19. My Husband and I have been signing a letter every year gifting my sister $28,000 as equity in the home we home we own, but let her live in. Now she would like to buy it. Can we use the last five years of gift letters as her down payment and she just pay us the remaining balance on the fair market value of the home? The home is worth $275,000, less the $84,000 gift of equity, and she pay us $135,000?

    1. Hi Lisa:

      If you’ve been giving it to her for the last five years, it should be in her account long enough that she can just use it as regular assets. It wouldn’t be a problem. If she has any questions, she can give one of our Home Loan Experts a call at (888) 980-6716.

  20. I would like to do a Gift of Equity to my stepdaughter and family but they have horrible non existent credit. Had a house foreclosed on them several years ago. Can I still do this?

    1. Hi Jan:

      Their credit has no impact on your ability to give them a gift of equity. However, the problem they’re going to run into is that you need decent credit (580 median FICO® or higher) to get approved for a loan in many cases. Any score below that is considered subprime. Not only would they be paying higher costs for the loan, but not many lenders do those.

      I would recommend they start monitoring their credit with a service like QLCredit. They can pull their VantageScore® 3.0 credit score and report from TransUnion. Because it’s a soft pull, it wouldn’t affect their score. In addition to getting the report and score for free every two weeks, they’ll get personalized tips on how to improve their scores.

      This blog post also has some good general credit building tips. Hope this helps!

  21. I have been renting my brothers house. It is worth $300,000 and he will sell it to me for $220,000. If the $80,000 is considered a gift of equity, will he have to pay taxes on that money?

    1. Hi Asant:

      I’m going to preface what I have to say with the fact that we are not tax experts. For the most definitive advice, you should really talk to a CPA or other tax professional. However, I’ll try to help here.

      Since the gift is greater than $15,000, he does have to file a gift tax return with the IRS. However, your brother can gift up to $5.6 million in his lifetime before yes to pay taxes on any of it. Forbes has more information. I hope this helps!

  22. I’m buying my grandparents house for $120,000, it was just appraised for $160,000. So I have $40k in equity, we are putting the price at $128,000 and using that $8000 for the closing costs. But when it comes to using the gift of equity, will that amount go on to the loan amount ? So 3.5% down is $4480, so will my loan then be for $132,480? Just want to make sure my family is still getting the full $120,000 at the end of the day.

    1. Hi Kyle:

      When you take a gift of equity, the gift can be used to cover both your down payment and closing costs. With that in mind, your loan amount would just be slightly higher because part of your gift of equity would be covering the closing costs. If you agreed on a purchase price of $120,000 with the gift, that’s the amount they would get at the end of the day. If you have any questions, I recommend speaking with one of our Home Loan Experts at (888) 980-6716. Thanks!

    1. Hi Rohn:

      When you get the gift, your family member has to sign a statement in which they identify their relationship to you. It works like a sworn legal statement.

  23. I’m selling my home to my son & daughter in law for 69,000 it’s worth 100,000. What happens to the 30,000 equity that I earned? Do i lose it?

    1. Hi Charmaine:

      Anytime you sell a home for less than what it’s worth, that extra equity is transferred to the buyer, in this case your son and daughter-in-law. I hope this helps!

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