What is a Gift Of Equity Purchase?

A gift of equity purchase is a great option for someone who wants to sell their house to someone in their immediate family (brother, sister,son, daughter, etc.)

How Do Gift Of Equity Purchase Work?

A gift of equity loan is a special type of mortgage used almost exclusively in situations when you purchase a home from a family member.  As long as the family member who owns the home has at least 20% equity in the home, he/she can sell you the home at 80% of its appraised value, thus allowing you to finance the 100% of the sale price.  The remaining 20% of the home’s value is then given to you as a gift from the family member.  It is this gift of equity that allows you to finance the full purchase price with no down payment.  All closing costs (except appraisal) can be financed in the loan.

Obviously, this type of loan program is most attractive to parents or grandparents who want to sell a family home to one of the children/grandchildren.  In such situations, it is a win-win arrangement for everybody concerned: realtor involvement is unnecessary; the home owner earns cash from the sale, and your loved one gets a head start in life by acquiring an asset with equity.  It is not, however, the best option for everybody.

Gift of Equity Example:

: if you own a home that is fully paid-off and is worth $300,000, you can sell the home to your relative for $240,000, which is 80% of value.  Your relative then receives $60,000 of equity in the home as a gift (instead of having to make the $60,000 down payment that would be required by a conventional loan).  If closing costs are $3,000, you keep $237,000.  Meanwhile, you save $14,400 in realtor commission (assuming the standard 6% fee).

. Contact us or Give us a call today (808) 728-9999 and we would be more than happy to answer any other questions you may have, and see if the Gift of Equity purchase is the right fit for you.