Buying a Family Home With a Gift of Equity in Pennsylvania

What is a gift of equity?

A gift of equity is a credit from an eligible seller's equity in the property. Depending on the mortgage program, it may help fund the down payment and closing costs. The lender still reviews the buyer's qualifications, the property value, and the donor relationship.

How is it different from a cash gift or seller credit?

A cash gift involves transferring money. A gift of equity involves value transferred through the home sale. A seller credit is a separate closing-cost contribution with its own rules. These terms should be identified correctly in the contract and closing documents.

What might a family purchase look like?

Hypothetical example: a parent agrees to sell a home for $350,000 and provide a $35,000 gift of equity. That gift equals 10% of the contract price. This arithmetic does not establish the required loan amount or cash to close. The appraisal, program rules, seller's mortgage payoff, and transaction costs still need review.

What should be reviewed before signing?

For a family sale in Montgomery County or Bucks County, start with the intended occupancy, purchase price, gift amount, and existing liens. The financing structure also needs to account for transfer taxes and settlement charges. A below-market arrangement does not automatically eliminate those costs.

Bring the proposed purchase agreement, seller relationship, mortgage payoff information, available asset statements, and any gift documentation. Your title professional and tax adviser can address ownership and tax questions alongside the mortgage review.

Gift of equity questions

Can a gift of equity pay closing costs? Under Fannie Mae's gift-of-equity rules, it may fund eligible down payment and closing costs, including prepaids. Other program requirements should be checked separately.

Can the gift count as reserves? Under Fannie Mae's rules, a gift of equity cannot satisfy financial reserves.

Do I still need to qualify for a mortgage? Yes. The gift does not replace credit, income, asset, or property underwriting.

Do we need a gift letter? Fannie Mae requires a signed gift letter and a settlement statement showing the gift. The lender may request additional transaction documents.

Review the financing before you finalize the sale

Tell us who owns the property, the expected price, and how much equity the seller wants to give. We can review potential loan options and explain the information needed for a full assessment.