A gift of equity is the gift that keeps on giving
In simple terms, gifting of equity happens when a related family member gifts equity in the home on a purchase. This is not a gifted downpayment, as there is no passing of money.
Family member #1 is buying from family member number #2. Often this happens when a son or daughter wants to sell a property to their parents or vice versa.
Avoiding a Down Payment on the Purchase/Transfer
When you gift equity you are giving over a portion of the value, typically appraised value, of the home. This is done with a gift letter. Stating how much will be given as equity. In some cases, when the home has no mortgage, by increasing the gift amount you can reduce your family members’ mortgage amount on the purchase. Thus, reducing their payments and cost of borrowing.
Avoid Legal Fees on the Purchase/Transfer
Lawyer fees can be quite a bit on closing. Ranging from 1% to 2% of the mortgage amount or the purchase amount. These fees are avoided when gifting equity if there is enough equity within the home to gift. Always chat with an appraiser, and your licensed Broker/Agent when it comes to gifting. They can create a plan for you and finalize totals of the gifted amount, and overall funding conditions (application requirements).
Money does not exchange hands
There is no money involved with a gift of equity. The gift is inside the actual value of the home. In theory, you are gifting the full value of the home, and your gift receiver is obtaining a mortgage for the amount you are actually wanting to realize from the transaction. It is this simple. Check out the spreadsheet below to understand the number.
This does not include legal costs. Always chat with your lawyer and licensed Mortgage Broker/Agent before you start your gifted equity process.
| Gift of Equity on Purchase/Transfer | ||
| NEED VALUE OF HOME YOU WANT TO SELL TO FAMILY MEMBER | $ 500,000.00 | Appraisal Value |
| What is the Approximate Mortgage Balance on Your Current home you are selling? | $ 50,000.00 | Current mortgage statement |
| This is how much Equity Exists in your Home | $ 450,000.00 | |
| Setting up the sale to Family Members | ||
| Total Sale Price of the home to Family Member | $ 500,000.00 | |
| Total Amount of Mortgage | $ 400,000.00 | Performed by Lawyer |
| Gifted Amount | $ 100,000.00 | Performed by way of gift letter |
| Total Amount that you receive when Transaction Funds | $ 350,000.00 | |
