Gifts of equity and gifts of cash to help make a down payment are two strategies that can help home
buyers get into a home when homeownership may be just outside of their reach. You have probably heard of
down payment assistance as a means of help to secure a mortgage loan, but how about a gift of
equity?
What is a Gift of Equity?
A gift of equity is when the homeowner agrees to sell the home for significantly less than the appraised
market value of the home. The difference in the sale price and the fair market value of the home is the
gift. This is put down toward the buyer’s down payment to help them qualify for a mortgage.
This is not the same as a motivated seller selling a home for a low price just to get the home sold. This
is a situation where the seller knows the buyer personally and wants to help the buyer get into the
home. The buyer will still need to adhere to their lender’s rules on receiving a gift.
Gift of Equity is Different From a Down Payment Gift
The difference between a gift of equity and a down payment gift is that the first one involves the
property owner. It requires the owner to agree on a sale price lower than market value that they most
likely could sell the home for in a traditional sale in order to gift equity to the buyer. A cash down
payment gift is not allowed to come from a seller when seeking a mortgage.
Most often lenders will only accept gifts of equity from family members as this is the rule for federally
backed loans. FHA states only family members may do this when selling to other family members. Fannie
Mae will allow this between a borrower’s spouse, child, or other dependent or another individual related
to the borrower by blood, marriage, adoption, legal guardianship, fiancé, or domestic partner.
The gift of equity must also be proved as a gift and not a loan that is expected to be paid back
later.
Some Lenders Will Require a Partial Cash Down Payment
A gift of equity is meant as a means to help get a buyer into a home when they cannot afford a sizable
down payment to purchase a property. It can be a significant means of help to a first-time home buyer or
to those hoping to switch from renting to owning.
Some lenders will require a buyer to put a portion of the down payment in the form of their personal
cash. Fannie Mae requires that a buyer needs to contribute at least 5% of the home purchase price if
this is a second home or a multi-unit residence like a fourplex or duplex.
Qualifying for a Mortgage with an Equity Gift
Even with a sizeable equity gift from someone related to you, you will need to meet mortgage loan lending
requirements. These requirements are pretty standard as with most loans in that they require a credit
score of at least 580-620, a clean credit report, a two-year history of employment and income, and a
reasonable debt-to-income ratio.
When purchasing a home it is best to shop for all of the mortgage home loan options available to you to
decide which would be the best personal financial decision for you. The best way to discover all of your
loan options is to work with an experienced mortgage broker that can do all of the loan shopping for you
and help to explain each option.
Need additional help or connections and references to local lenders? Contact us at any time. For all
homes for sale in Mesquite Nevada, start your search here.
