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What is Gift of Equity letter?

hi, I was planning to buy a house with gift of equity. The lender ask for gity of equity letter in order to process the loan. I wasn't sure how to write a letter or should it come in a form. Can someone help me out? thanks.

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The person who is gifting the equity will make out the letter stating the amount they are gifting and the other details. You should consult the lender about the details that are to be included in the letter.

If it would be a taxable gift, then the person gifting the equity would have to report it on IRS Form 709. You can get the details about tax implications for the person gifting the equity from this IRS page: http://www.irs.gov/pub/irs-pdf/p950.pdf

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kenstampe's picture
kenstampe | Joined: January 22, 2007 02:45 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Don't let sugden get you worried about the gift tax in most cases. Yes it can have a tax implication and you DO need to have a CPA give you tax advice. That said, the 2006 exclusion was $12,000. In other words if you are getting a gift of equity of $12,000 or less then the GIVER has not tax impact. If you are getting a gift greater than $12,000 there still may be no tax impact but it would depend on how the GIVER files the gift tax return.

Even if you are getting a gift of $100,000 the GIVER may not pay any taxes in conjunction with the gift but it would limit the amount of their lifetime exemption from gift taxes. Make sense yet?

Call your CPA or have the giver call their CPA. As for the letter itself, ask the lender to provide you a gift letter form or example. If they can't provide one then use common sense and it should include the following:

giver
getter
property
amount
what strings (if any)
what time frame

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

You can ask the lender to help you out. He may be able to show you a sample letter for the gift of equity purchase.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

my wife and I are selling our home to my brothers uncle in the tune of 400K the home is valued at 550K. Can I give the difference as a gift of equity without a tax penalty What could be the down side and to whom would it effect
I Live in New Jersey

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Mortgage girl,

Any individual conveying his interest in property to some other person can avoid paying taxes on the gift-transfer known as gift tax. But for that, the value of the property transferred to a particular person should be limited to $12000 in a particular year. Then only the the transfer is considered as gift.

However, if a person transfers property valued for more than $12000, he can be exempted from paying taxes on the first $12000 of the property value. Also, anyone can transfer property worth $1,000,000 in total in his lifetime prior to paying gift tax.

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sitalotbeach's picture
sitalotbeach | Joined: November 3, 2006 09:53 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The lender or mortgage broker should be able to provide the actual 'Gift' form to you. Lenders have a list of 'FORMS' and it would be the same form used for 'Gift Money' instead of money as the gift, it is the 'Equity'.

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blue's picture
blue | Joined: October 21, 2005 09:17 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest,

[quote:d02e1bcbf8]The lender ask for gity of equity letter in order to process the loan. I wasn't sure how to write a letter or should it come in a form.[/quote:d02e1bcbf8]

You can use the format for a gift of equity letter other community members have provided on this page:
http://www.mortgagefit.com/know-how/giftequity-letter.html

Do let me know if you have any other questions.

Thanks
Blue

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am the seller, does this come out of the total amount of the house. Lets say, I am selling the house at 140,000. Current amount owed is 55,000. My gift letter to the buyer is 29,000. Does that mean that when sold at 140,000, you subtract, 55,000 and 29,000 and closing cost ect?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi byd6807!

Your query has been answered in the following link:
http://www.mortgagefit.com/propertytransfer/gift-equity.html

Please take a look. I think it will help you.

Thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I had bought my mothers house from her In August 2008. The House appraised for $124,000 and she gifted me 20% of that, which brought my price to $96,000. My mom was just informed by her tax accountant that she now has to pay between $8-10,000 of this back. When I asked my mortgage guy about this when we signed, he said mom would not be taxed. So now what is she suppose to do with this????? Now moms accountant has never dealt with a gift of equity before so she's actually finding out what she needs to do herself. But until then, Can you please give me an example of what she's dealing with here or what she needs to do??
Thank You.
KMV

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

A gift of equity has a potential tax consequences. It would have been better if you would have discussed the particulars with a tax advisor to understand how it would impact your mother. I think she should contact a tax adviser who is an expert in dealing with gift of equity. He/she will help her in dealing with the situation.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi, My husband bought the house before we were married and since then, he's lost his job. The original loan was a construction loan and now we're trying to transfer it over to a reg. morgage. I don't have a down payment and they are saying they can't do a gift of equity from him to me because we're married. Is there any way around this?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hello. My in-laws have had their home on the market for sometime. The house is appraised at $300,000. They have kept my wife and I on the reserve list as we have always had an interest. They currently dropped the price to $229,000. However, they approached us with the idea of buying the house at the appraised value of $300,000, however only requiring us to get a $215,000 loan, thus gifting the $85,000 in equity. I'm assuming the sale price is inconsequential since we were reserved, we are family and the appraisal is $300,000. Can anyone confirm?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i won't make any declarative comments about taxation, but i am led to believe that there the hwould be tax implications involved in the gifting of the equity.

as for the value relative to the sales price, the sale could be done at the $300K number with the gift being $85K. a lender granting you your new loan would be doing a separate appraisal also, so the ultimate value will lie with that new appraisal.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am selling my brother-in-law a house on 13.98ac. He has been paying the mortgage payments and taxes for the last 4 years. I am keeping approx. 2 acres of land as my equity. The property appraises at $65000. My brother-in-law is getting a loan to pay off the existing mortgage of $38000 and that way the mortgage will be in his name. Do I need to write a gift of equity letter? How would you figure the amount that is being gifted?

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savior70's picture
savior70 | Joined: March 25, 2009 05:14 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi

Are you going to help your brother-in-law with the down payment towards the loan? If you make any cash payment to him to help him with the down payment, you’ll be required to write a letter of equity to the lender to confirm the fact that money of the down payment is not from any borrowed source.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

No cash money is changing hands between us. He is just getting a loan for the payoff amount of my current mortgage so he can get the property in his name.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

we are buying a house from our daughter and son in law for what's owed on the home $109 thousand after closing cost and fees we will be financing $118 thousand....we were asked to get out son in law to sign a letter gifting us equity of $48 thousand...do they intend to actually use this money as a down payment raising our total to be paid $168 thousand?
Nothing was said about using this money as downpayment but only to show the value of the house...now I've talked to our accountant and read all these horror stories...does this sound right??

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My son and his wife just bought their first house. 2 weeks later they split. They bought the house with no money down, so there's no equity at all. She wants no responsibility for the home. He's willing to take it alone. Can she "gift" the house to him thus allowing him to remove her from the mortgage and title to the home? They are not yet divorced as it has just recently happend. They are young, no kids and have no other credit obligations and nothing to contest, so the divorce will be a matter of filing the appropriate paperwork.

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savior70's picture
savior70 | Joined: March 25, 2009 05:14 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

To katie,

Your son's wife can transfer the property ownership to your son through a quit claim deed. But this will not take her name off the mortgage. Property title and mortgage are two different things. Your son will have to [url=http://www.mortgagefit.com/refinance.html]refinance[/url] the mortgage in his name to get his wife's name off it. She can gift her share of ownership, but she cannot gift her liability towards the mortgage. If she wants her name off the loan, your son will be required to refinance solely in his name.

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marinomortgage1's picture
marinomortgage1 | Joined: November 27, 2009 04:35 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Usually has to be a Family member gifting equity out of the property in order for you to use it for down payment money :D

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I need a gift of property form, Family member is gifting property to me and I am making a equity loan and need a gift of property letter

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi dlham,

I don't think there is a separate form available for gift of property. If a person wants to give you a property as a gift, then he or she will have to use a quit claim deed. You can contact an attorney and he would help you in drafting the deed.

Thanks

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

The smartest way to go about this is to call it a purchase, which is what it really is. Then complete a purchase contract between the two of you and incorporate the language about the gift in the contract. As James said, you can have an attorney help you out with the language and the format.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We are in the process of moving my parents into an assisted living facility and I am going to buy their house. This facility is based solely on SS and they are asking for a gift letter from my parents stating they are gifting me the home, but I will be purchasing at a latter date. Is there such a letter for this type of transaction

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Well... it'll be better if you could contact an attorney and get such a letter drafted from him.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Great idea to engage an attorney, especially in light of what's being asked. If you're purchasing the home, why is the assisted living facility seeking a gift letter? That seems pretty odd.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am purchasing a home. I have the required 5% down. My mother wants to give me more to help lower my mortgage payments. Do I need to inquire of my lender and if so, will they try to pad the cost of the loan when they see that I have "extra" money? Is there any way around the gift letter? I have the check now. Can I just deposit it ? My lender assumes I am only putting the required amount down. Should I tell them that I am interested in putting at least 10 percent down? Will my lender want to trace my down payment? when will they trace it? A day before closing?

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest!

Welcome to forums!

If your mother is giving you the money as a gift, then you'll have to get a gift letter for the same and inform the lender about it. The lender will want to trace down the payment. The gift letter will help the lender in that matter.

Feel free to ask if you've further queries.

Sussane

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

T, your fears are unfounded. No lender is going to try to "pad" the cost of the loan because you have additional funds for down payment. In fact, you ought to find yourself in better shape with the elevated down payment.
Yes, indeed, the gift must be verified; the lender will need to verify that your Mom is giving the funds as a gift and not as a loan, that she had the funds to provide you with a gift, and that you've received the funds (cancelled check), deposited them into your account, etc.

There is too much fraudulent behavior taking place in the mortgage markets and that hurts everyone. Therefore, all such deposits must be verified in order for lenders to grant the loan requests they are getting from borrowers.

Yes, it looks like an intrusion, and perhaps it really is. But with the high level of corruption and fraud over the years, it's a necessity to provide lenders with the precise data they need. It will not affect your adversely. Have no fear.

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