Gift of Equity?? Help

5 Replies

Is anyone familiar with a gift of equity? 

I'm thinking about purchasing my mother's home as my family consisting of me, my husband and daughter have been living in it and paying the mortgage the last 4 years. The house is located in Brooklyn, NY. It is valued at about $550,000 based off of neighborhood comps and she still owes $384,000 on the home. She currently in a ballon fixed rate loan from a remodification and we will not have the money to pay off the deferred amount of the loan at the loan term which is in 18 years. So I've been trying to figure out ways to save this house as my mother worked very hard to purchase it. I would like to keep it in the family if possible. My concerns are I am currently working on my credit (low 600 Fico), I have limited savings and the house is in need of renovations to bring it up to date. Most of the repairs are cosmetic, but in my opinion the home is in need of a full gut job. I did look into a FHA 203k loan which helps cover renovation costs and also a conventional loan.

I did some research on a gift of equity and I seem to understand the basics including how it can be beneficial in the sense as I can use part of the equity as a down payment for the home. Then I have also read that there can be huge cons like a huge tax bill for my mother on the gift of equity. 

Is this even possible in NYC?

Originally posted by @Inemesit C. :

Is anyone familiar with a gift of equity? 

I'm thinking about purchasing my mother's home as my family consisting of me, my husband and daughter have been living in it and paying the mortgage the last 4 years. The house is located in Brooklyn, NY. It is valued at about $550,000 based off of neighborhood comps and she still owes $384,000 on the home. She currently in a ballon fixed rate loan from a remodification and we will not have the money to pay off the deferred amount of the loan at the loan term which is in 18 years. So I've been trying to figure out ways to save this house as my mother worked very hard to purchase it. I would like to keep it in the family if possible. My concerns are I am currently working on my credit (low 600 Fico), I have limited savings and the house is in need of renovations to bring it up to date. Most of the repairs are cosmetic, but in my opinion the home is in need of a full gut job. I did look into a FHA 203k loan which helps cover renovation costs and also a conventional loan.

I did some research on a gift of equity and I seem to understand the basics including how it can be beneficial in the sense as I can use part of the equity as a down payment for the home. Then I have also read that there can be huge cons like a huge tax bill for my mother on the gift of equity. 

Is this even possible in NYC?

 I'll leave the tax question to the tax pros, but gifts of equity can indeed make magic happen. These intrafamily sweetheart deals, structured properly, are the best deals there are all around (as a parent-to-child gift should be). Reno loans are expensive financing, I'd suggest finding a lender local to you that knows how to set it up like this (parent to child, Oakland CA, few months ago) without reno for some clients of @Jorge Jimenez , and use the money kept in your pocket to pay for the reno... I think you should be able to swing that after a down payment and cash to close number like this:

The inherited property tax bill isn't going to be so sexy outside of California where Prop 13 lets it be transferred parent to child. 

@Inemesit C. I know this was over a year ago, but just curious if you went forward with the "gift of equity"? I'm in a similar position but trying to get more information on the tax impact. I'll probably need to contact my CPA but just curious about your experience.

Brian

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