Using gift equity for down payment

2 Replies

I'm in the process of purchasing a home and looking for some advice or others opinions. I am purchasing a home from a family member for about 150k below market value. My two options are to receive a gift of equity for a down payment of 20% or pay 5% out of pocket. My plan is to rehab this home (cost will be around 100k) and live in for a couple years before buying a second property and renting this out. Any insight or advice is appreciated.

Originally posted by @Thomas DiGregorio :

I'm in the process of purchasing a home and looking for some advice or others opinions. I am purchasing a home from a family member for about 150k below market value. My two options are to receive a gift of equity for a down payment of 20% or pay 5% out of pocket. My plan is to rehab this home (cost will be around 100k) and live in for a couple years before buying a second property and renting this out. Any insight or advice is appreciated.

 Gift of Equity is nicer since your cash out of pocket is reduced to zero and if you design the purchase with seller closing credit you could complete your purchase potentially with no cash out of pocket. The Seller or family member will be debited your gift of equity on their side of the settlement statement and you'll be credited that gift as down payment. The seller/family would also be debited from their proceeds for the seller closing cost credit to allow you potentially no cash out of pocket as well to close.

It sounds like this will be a nice capital gain play if you are looking to equity bank it using the IRC 121 primary residence exemption as well. 

I've worked on these types of gifts of equity before from 5-20%+ gifts of equity. You can do them on primary homes and second homes but not investment occupancy properties atleast with respect to conventional agency loans.

Good luck on the deal Thomas,

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