π Gift of Equity Calculator
Family sale, priced with love.
Mortgage amount after the gift
Estimates for planning only, not financial advice.
A gift of equity is when a family seller sells below market value and the discount counts as the buyer's down payment. On a $350,000 family sale with a $35,000 gift, the loan needed is $315,000 and the gift is 10.0% of the price, clearing FHA's 3.5% minimum several times over. No cash changes hands for the down payment; the equity does the work.
How to Use This Calculator
Enter the agreed purchase price and the gift amount (market value minus price). The calculator returns the loan needed and the gift percent with the FHA check.
Enter the purchase price on the contract.
Enter the gift of equity dollars.
Read the loan amount and FHA check. For closing costs on top, our closing cost estimator fills the gap.
How Gift of Equity Works
The seller, usually a parent, sells to family below appraised value. The lender treats the discount as the buyer's equity, documented with a gift letter stating no repayment is expected. FHA explicitly allows it to cover the 3.5% minimum; conventional loans allow it too, often with no minimum buyer cash contribution when the gift exceeds 20%. The seller may owe gift tax filings above the annual exclusion, though actual tax is rare given the lifetime exemption.
Worked Example
Parents sell their $385,000 home to their daughter for $350,000, a $35,000 gift of equity (10.0%). She borrows $315,000. The gift covers the down payment entirely, so her cash to close is just closing costs. Compare buying the same home from a stranger at $385,000 with 10% down: $38,500 cash plus costs. The family structure saves her the entire down payment while the parents still net $350,000, which was the plan all along.
Rules That Trip People Up
The gift letter is non-negotiable: it must state the amount, the relationship, and that no repayment is expected, signed by donor and recipient. The appraisal still has to support the market value; an inflated value to manufacture equity gets flagged. And the donor should talk to a tax advisor: gifts above the annual exclusion require a return, and basis issues can matter later. Some lenders add overlays, so confirm the program's gift-of-equity rules before falling in love with the structure.
My advice: get the lender's written confirmation of the gift-of-equity policy before the contract is signed. It is a standard FHA feature, but individual lenders interpret documentation differently, and discovering that at underwriting is miserable. Done right, it is the cleanest path to homeownership many families will ever see.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is a gift of equity?
When a seller, usually family, sells a home below market value and the discount counts as the buyer's down payment. Documented with a gift letter; no cash changes hands for the equity.
Does FHA allow gift of equity?
Yes, explicitly. It can cover the entire 3.5% minimum down payment and even closing costs in some cases. The gift letter and appraisal requirements still apply.
Do conventional loans allow gift of equity?
Yes. Fannie Mae and Freddie Mac permit it, and when the gift reaches 20%, the buyer's own cash contribution requirement often drops to zero. Lender overlays vary, so confirm early.
What must the gift letter say?
The dollar amount, the donor's relationship to the buyer, the property address, and a clear statement that no repayment is expected. Both parties sign; the lender keeps it in the file.
Does the seller owe gift tax?
Gifts above the annual exclusion require filing a gift tax return, but actual tax is rare because of the large lifetime exemption. The donor should confirm with a tax advisor.
Can the gift cover closing costs too?
FHA allows the gift to exceed the down payment and apply toward closing costs and prepaids in many cases. Conventional rules cap interested-party contributions differently, so check the program.
Does the home need an appraisal?
Yes, and the appraised value anchors the gift math. If the appraisal comes in below the assumed market value, the gift shrinks and the loan structure must adjust.
Can non-family give a gift of equity?
Generally no; programs restrict it to family, and some include fiances and domestic partners. Unrelated sellers cannot create equity gifts, which prevents disguised seller concessions.
What if the appraisal comes in low?
The gift shrinks to the appraised value minus the price, and the loan must cover the rest. Build an appraisal contingency into the contract so a low value triggers renegotiation instead of a dead deal.
Can gift of equity combine with down payment assistance?
Sometimes, but stacking programs multiplies documentation and overlays. Get the lender to bless the full structure in writing before you count on both sources.