Buy property from family with no money down. Use a Gift of Equity.
A seller can give a Gift of Equity to a relative or someone who the seller has a close relationship with. The sale price is below the market value. The difference between the sale price and value is the equity. The seller then gifts 20% of that equity to the buyer.
I was able to buy property from family with no money down using a Gift of Equity.
In 2000, I purchased my first home from my sister. I had no money to put down on the house and was pretty green about the entire home buying process. I thought I could participate in a no money down home buyer program. However, my loan officer told me about a Gift of Equity from my sister to me.
How To Give Equity as a Gift
In order to buy property from family with no money down, you will need a gift letter from the seller. The gift letter should include the following:
- The donor’s name, address and phone number
- The donor’s relationship to the seller
- The dollar amount of the gift
- The date the sale will occur
- A statement that the seller will not expect repayment
- The seller’s signature
- The address of the property being purchased
Who is “Family” or “Someone Who the Seller has a Close Relationship With” for a Gift of Equity?
The buyer and the seller must have a family type relationship with the buyer. The seller must be related by blood, law, or marriage. This can mean a spouse, child, or another dependent.
The Federal Housing Authority (FHA) has a different rule on gifts of equity and allows gifts from employers, charitable organizations or government agencies. The FHA also allows gifts from friends provided there is documentation of a long-term relationship prior to the sale. For example, pictures that show that the buyer and seller knew each other prior to the sale should suffice.
Are there Any Tax Consequences To Buy Property From Family with No Money Down?
The seller does have to report this gift on his or her tax return but may not have to pay taxes on the gift
Read more about tax consequences of gifting equity:
IRS Increases Annual Gift Tax Exclusion for 2018
Since you get a life time exclusion of tax gifts of $5.43 million, the seller will not pay taxes on the gift.
If you know of a family member or have a close enough relationship with someone who may want to sell their home, and you do not have or want to put down a down payment, consider using a gift of equity. It worked wonders for me.