Thinking about buying a home or property from a family member? Maybe you’ve been living in a home that your parents or relatives own, and now they’re ready to sell it to you at a great price. If so, you might qualify for something called a gift of equity—a powerful tool that allows you to buy a home with little to no money out of pocket.
As a mortgage broker licensed in North Carolina, South Carolina, and Florida, I’ve helped many clients navigate this process. In this post, I’ll break down how a gift of equity works and how it can help you finance a home from a relative without needing a traditional down payment.
Watch the Full Video Breakdown
What Is a Gift of Equity?
A gift of equity is exactly what it sounds like—your down payment comes from the equity already built into the home, and it’s gifted to you by the seller (who must be a blood relative).
This is a common scenario when:
- A relative owns the home free and clear
- They want to sell it to you for less than market value
- You want to avoid paying out of pocket for a down payment
Lenders allow this equity to count as your down payment, as long as it’s properly documented and the transaction meets eligibility criteria.
Example: How a Gift of Equity Works
Let’s say your parents own a home worth $200,000. Instead of selling it to you at full market value, they agree to sell it for $140,000—essentially gifting you $60,000 in equity.
If they allocate 20% of the home’s value as your down payment, that’s $40,000 in gifted equity. You could then apply for a conventional loan of $100,000:
- No down payment required from your own funds
- No mortgage insurance, because you’re technically putting 20% down
- Lower monthly payment and upfront costs
Covering Closing Costs with a Gift of Equity
Your relatives can also gift the closing costs. In this scenario:
- The sales price is increased slightly to cover the estimated closing costs
- Let’s say the closing costs are $5,000
- The price is raised to $145,000, but you still only finance $100,000
- The additional value comes from the built-in equity—not your bank account
The result? You’ve purchased a home from family with no out-of-pocket expenses—and possibly avoided private mortgage insurance in the process.
Key Takeaways: Buying from Family with a Gift of Equity
✅ You can buy a home from a blood relative with no money down
✅ Your down payment is gifted as equity already in the home
✅ The seller can also cover your closing costs
✅ This strategy works with conventional mortgages (and applies nationwide)
✅ You’ll need a proper gift letter and appraisal to confirm market value
FAQ: Gift of Equity Home Purchases
Who can give a gift of equity?
Only blood relatives—parents, siblings, grandparents, etc. It must be a family connection recognized by mortgage underwriting guidelines.
Do I need a down payment if I get a gift of equity?
No. The gifted equity replaces a traditional down payment, as long as it meets lender requirements.
Is mortgage insurance required?
Not if the gifted equity covers at least 20% of the home’s appraised value. This helps you avoid PMI and lower your monthly cost.
What paperwork is required?
You’ll need a formal gift letter and a real estate appraisal to document the market value and equity position. Your lender will help walk you through it.
Is this legal in all states?
Yes—this process is recognized nationwide, including in North Carolina, South Carolina, and Florida.
If you’re considering buying a home from a relative and want to see if a gift of equity applies to your situation, contact me today. I’ll walk you through the process step-by-step to help you make the most of this opportunity.