GIFT OF EQUITY
When one family member wants to buy a home from another family member.
The Gift must be at least 20% (there are some exceptions). In addition to the Gift of Equity the family member may pay for closing costs up to 6% of the agreed Sales Price.
A Gift of Equity is normally not permitted to buy out a problem with the current mortgage. In other words, if the home is in foreclosure or there are current late payments, a Gift Of Equity will not be permitted.
How does it work?
If the agreed Sales Price is $200,000, the Gift would be $40,000 (20%) and the buyer would take a mortgage for $160,000 (if qualified). The $40,000 would NOT be transferred as cash, but as a “gift of equity”.
The sales contract would reflect this “gift” as the down payment.
The Seller can also pay closing costs up to 6% of the Sales Price or in this case up to $12,000.
Should you have a further question, please call me at 800-817-8743.
Dan Palumbo, Licensed Mortgage Banker
Dan is the published author of the Mortgage Loan Officer Training Manual. You may order one by visiting www.mortgagetrainingmanual.com
Licensed Mortgage Banker - New Jersey Department of Banking and Insurance; Licensed by the Pennsylvania Department of Banking; Virginia Licensed Mortgage Lender