Gift of Equity
A gift of equity is another source for the down payment and/or closing cost of a purchase transaction between the buyer and seller. The seller must be a related person to the buyer. A related person is defined below and is subject to change without notice:
- The borrower’s parents, grandparents, siblings
The gift of equity ($$ amount) is noted on the settlement statement (HUD-1) at time of purchase and Agreement of Sale and loan application. The equity in the subject home is the main factor in the gift of equity purchase transaction. There is no money exchanged for the gift. However, the buyer is responsible for the remaining down payment and closing cost depending on the structure of the loan. The seller should have a good idea of the amount of equity in the property for sale; (Market value minus the balance of existing mortgage loan). The transfer tax is typically around 2% split in the Delaware Valley, Pa area. The transfer tax is typically exempt for the seller and buyer in most cases because the transaction is considered to be a family deed purchase. The closing cost savings for not paying transfer tax can range from 2% to 5% of the purchase price depending on the county in Delaware Valley, Pa.
The example below shows the buyer paid 0 % down payment because the seller gave a gift of equity of $50,000 and also saved on paying transfer tax because the transaction was considered a family deed purchase.
| Example: | Purchase Price = Gift of Equity = Total loan amount = |
$250,000 $50,000 $200,000 80% of the purchase price |
| In most cases, the transfer sales tax is exempt because of family deed purchase. Savings is $5,000 ($250,000 X 2%) | ||
Contact Financial Access, LLC for questions about gift of equity at 267-382-0690 or complete the form to your left for additional assistance.
