Compare Mortgage Quotes

Refinance Rates for Today

Please enable JavaScript for the best experience.

In the mean time, check out our refinance rates!

Company Loan Type APR Est. Pmt.

What is Gift of Equity letter?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 13th Feb, 2007 10:06am
When you purchase a home at a price lower than its actual sale price because the seller may have offered to pay a certain part or whole of the down payment as a gift, then the down payment amount gifted is known as gift of equity.


If you're accepting a gift of equity from the seller, request the latter to provide you with a gift of equity letter so that you can submit it to the lender as a proof of the gift of equity.


When you receive a gift, you need not pay any tax on it. However, the person offering the gift may have tax liability as discussed at http://www.mortgagefit.com/gift.html#exemption.


For a sample of the gift of equity letter, refer to http://www.mortgagefit.com/know-how/giftequity-letter.html. You may also ask your lender to provide you with a format of the letter.
Posted on: 13th Feb, 2007 10:06 am
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.
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
Posted on: 13th Feb, 2007 11:16 am
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
Posted on: 13th Feb, 2007 01:24 pm
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.
Posted on: 14th Feb, 2007 04:33 am
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
Posted on: 22nd Feb, 2007 07:54 pm
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.
Posted on: 22nd Feb, 2007 09:06 pm
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'.
Posted on: 28th Feb, 2007 07:48 am
Hi Guest,

'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."
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
Posted on: 13th Apr, 2007 03:36 pm
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?
Posted on: 22nd Nov, 2008 02:11 am
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.
Posted on: 23rd Nov, 2008 10:55 pm
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
Posted on: 25th Mar, 2009 11:39 am
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.
Posted on: 26th Mar, 2009 02:23 am
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?
Posted on: 04th Apr, 2009 07:29 am
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?
Posted on: 29th Apr, 2009 11:28 am
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.
Posted on: 29th Apr, 2009 12:59 pm
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?
Posted on: 02nd Jun, 2009 07:21 am
Page loaded in 0.274 seconds.