FHA Gift of Equity

Mortgage-World is an online mortgage company specializing in FHA Gift of Equity Loans.

We have over 20 years experience in the mortgage industry and we are licensed in New Jersey, Connecticut and Florida.
FHA Gift of Equity Loans allow the equity in the home to be used as down payment. You can finance the closing costs into the loan which allows no funds out of pocket required for closing.
For a quicker response, call 201-403-8673

FHA Gift of Equity

FHA Gift of Equity

A gift of equity is a transfer of ownership of a property to a family member or someone with whom the seller has had a previous relationship, at a price below or at the current market value. The difference between the actual sales price and what is owed on the home is called the gift of equity. This allows the gift to count as a down payment on the home.

FHA Gift of Equity Requirements

  • An FHA gift of equity requires a gift of equity letter that is signed by both the seller and the buyer. For the purpose of obtaining a mortgage, a gift of equity is treated as a purchase transaction.
  • A sales contract will be needed.
  • The buyer and seller must be related.
  • A minimum credit score of 580 is required.
  • 15% equity of the home must be used for down payment.

Eligible Properties

How Does it Work?

The process of utilizing the Gift of Equity is relatively straightforward. Here are the key steps:

  • Donor’s Equity: The donor, typically a family member, assesses the equity in their current home. This equity will serve as the gift.
  • Gift of Equity Letter: The donor provides a gift letter that outlines the amount of equity they are gifting and specifies that it is not a loan. This letter is submitted to the lender.
  • Property Appraisal: An appraisal is conducted to determine the fair market value of the property.
  • Purchase Agreement: The buyer and seller (donor) agree on the purchase price, which should be at or below the appraised value.
  • Mortgage Application: The borrower applies for an FHA-insured mortgage, and the gift of equity is used as part or all of the down payment.
  • Underwriting and Closing: The lender processes the loan application, and upon approval, the transaction closes, and the new homeowner takes possession of the property.

Benefits of the FHA Gift of Equity

  • Lower Down Payment Requirements: One of the most significant advantages of the FHA Gift of Equity program is the ability to secure a mortgage with a lower down payment. In some cases, the gifted equity can cover the entire down payment, eliminating the need for the borrower to bring their funds to the table.
  • Enhanced Loan Qualification: By using the gifted equity for the down payment, borrowers may find it easier to qualify for an FHA-insured loan, even if they have limited savings or lower credit scores.
  • Family Assistance: This program allows families to help each other achieve homeownership. It’s a way for parents to assist their children, or for relatives to provide support to one another, fostering financial stability.

Eligibility and Considerations

To leverage the Gift of Equity program, there are some important considerations and eligibility criteria to keep in mind:

  1. Relationship: The donor must have a close family relationship with the borrower, such as a parent, grandparent, sibling, or cousin.
  2. Gift Letter: A formal gift letter is essential, outlining the amount of equity being gifted and confirming it is not a loan.
  3. Appraisal: The property must undergo an appraisal to determine its fair market value.
  4. Purchase Price: The purchase price must be at or below the appraised value to utilize the gifted equity fully.
  5. Mortgage Qualification: The borrower must meet the standard FHA loan qualification criteria.

The Gift of Equity program offers a unique and advantageous path to homeownership, making it possible for families and friends to help each other realize their housing dreams. With lower down payment requirements and enhanced loan qualification, it’s a practical solution for those who may otherwise struggle to save for a down payment or qualify for a mortgage. If you have a close family member willing to gift equity, exploring this program could be your key to unlocking the door to homeownership.

 

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For a quicker response, call 201-403-8673

 

FHA Gift of Equity

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