Purchasing with a Gift of Equity
Lately I’ve been receiving more calls regarding purchasing with a gift of equity, mainly asking if it is allowed and how does it work. Usually this type of situation arises when you have a family member that has a significant amount of equity in their property and they would prefer to sell their property to family member.
To answer the first question “is gift of equity allowed?”, the answer is yes! Now to answer the second question “how does it work?”; It starts with the agreement to purchase the property at an agreed upon price, then deciding on how much of the equity they will want to gift to you. From there you need to get pre-approved and will need to make sure the lender knows your situation and is experienced with this type of transaction.
Most of the time these transactions will happen without a Realtor, which is OK but again you just want to make sure you are working with a lender whom is well versed and experienced in these types of transactions because they will help facilitate. If you do work with a Realtor make sure they are experienced as well because the real estate contract will need to be written a specific way and if it is not done properly then your purchase could get jeopardized at the closing table, nobody wants that.
You will also want to make sure your family member whom is selling the property has checked with their C.P.A. to determine if there will be any tax implications and if so what will be required. From there all it really takes is having a strong lender working with you through the process and you and the seller assisting them with the needed documents required for underwriting.
Gifting equity is a great opportunity and for many it means you will be purchasing a property well under market value so you are walking in with equity as well as going in with little to no money down! Not to mention you are keeping a property in the family for another generation or two!
If you have any questions or would like to discuss in more detail please give us a call.