1. What is a Gift of Equity?

A gift of equity is when a home seller gives a portion of their home's equity to the buyer as a gift. This reduces the purchase price and can help buyers qualify for a smaller mortgage.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Home\ Price \) — The agreed purchase price of the home
• \( Gift\ Amount \) — The amount of equity being gifted

Explanation: The gift amount directly reduces the loan amount needed to purchase the home.

3. Importance of Gift of Equity

Details: Gift of equity can help family members purchase homes, reduce mortgage payments, eliminate the need for PMI, and provide tax benefits (consult a tax professional).

4. Using the Calculator

Tips: Enter the full home price and the amount of equity being gifted. The gift amount cannot exceed the home price.

5. Frequently Asked Questions (FAQ)

Q1: Is gift of equity taxable?
A: In the U.S., the recipient may need to file IRS Form 709 for gifts over the annual exclusion amount ($18,000 in 2024). Consult a tax professional.

Q2: Can gift of equity be used for down payment?
A: Yes, it can serve as all or part of the down payment, potentially eliminating the need for cash from the buyer.

Q3: Do lenders accept gift of equity?
A: Most conventional lenders accept it with proper documentation, including a gift letter and appraisal.

Q4: What's the difference between gift of equity and seller financing?
A: Gift of equity is an outright gift, while seller financing is a loan that must be repaid.

Q5: Are there limits to gift of equity?
A: Lenders may limit how much can be gifted (often 20-25% of value) and require the home to be appraised.