Value contributed by an eligible seller through a below-market home sale rather than through a separate cash transfer.
A gift of equity is value an eligible seller gives a buyer by selling a home below its supported market value rather than transferring separate cash.
The difference can help satisfy an allowed down-payment or closing requirement, but the lender must approve the donor, transaction structure, valuation, and documentation.
A gift of equity can make a family or other eligible non-arm’s-length sale possible when the buyer has limited cash. The seller contributes existing property value instead of first receiving the full price and returning money to the buyer.
The gift is not created solely by writing a high estimated value in the contract. The lender relies on an acceptable appraisal and the loan program’s calculation rules. If the supported value is lower than expected, the usable equity gift can shrink and the buyer may need more cash or a different loan amount.
The transaction also must be transparent. The purchase contract, Gift Letter, appraisal, loan file, and Closing Disclosure should describe a consistent sale and contribution.
The parties should discuss a proposed gift of equity with the lender before finalizing the contract. The lender needs to confirm that the seller is an eligible Gift Donor under the selected program and that the intended use is permitted.
During underwriting, the lender reviews the relationship, purchase terms, appraisal, title, and documentation. The gift is reflected in the transaction figures rather than appearing as an unexplained deposit in the buyer’s bank account.
At closing, the settlement documents should show how the seller’s equity contribution affects the price, financing, and buyer’s required funds.
| Transaction figure | Illustrative amount |
|---|---|
| Supported property value | $400,000 |
| Contract purchase price | $340,000 |
| Potential value difference | $60,000 |
The $60,000 difference illustrates the potential gift of equity. The amount the lender actually accepts depends on the appraisal, program rules, allowable uses, loan structure, and closing documents.
A gift of equity is not cash left in the buyer’s account. It generally cannot be treated as post-closing liquidity merely because it reduces the amount of personal cash needed for the purchase.
| Review item | Mortgage question |
|---|---|
| Seller eligibility | Is the seller permitted to provide the gift under the program? |
| Relationship disclosure | Is the non-arm’s-length relationship clear? |
| Appraised value | Does independent valuation support the equity difference? |
| Gift documentation | Does the letter identify the amount and no-repayment terms? |
| Contract and closing figures | Do the price, financing, contribution, and final settlement agree? |
| Remaining borrower funds | Does any Minimum Borrower Contribution still apply? |
A parent owns a home worth an appraised $400,000 and agrees to sell it to an adult child for $340,000. The lender approves the relationship and documents a potential $60,000 gift of equity.
The buyer uses the accepted contribution toward the permitted purchase requirements and brings the remaining verified cash to closing. No $60,000 deposit appears in the buyer’s bank account because the gift is embedded in the sale value.
Gift of equity differs from Gift Funds because gift funds are transferred money. A gift of equity is value contributed through the home sale.
It differs from Seller Concessions because concessions generally pay or offset allowed buyer costs. A gift of equity transfers part of the seller’s property value.
It differs from a simple price reduction because the mortgage file specifically treats the supported value difference as a gifted contribution from an eligible seller.
It differs from Home Equity because home equity describes an owner’s value interest in property. A gift of equity is the transfer of some seller equity to the buyer within a purchase.