Comments on: Gift Of Equity

By: Helen Kresge

Helen Kresge — Wed, 01 Sep 2010 15:29:27 +0000

I am getting divorced and I am buying the home from my husband. The house is worth about $155,000.00. I am buying it for $105,000.00. This is the outstanding line of credit loan. The house was never in my name (although we have been married for 12 years). So the mortgage company is asking for a ‘gift of equity’ letter. From what I’ve this sounds OK. BUT, my huge problem right now is the vaslue of the home on the divorce papers (MSA) is listed as $130K and the mortgage guy listed it as $140K (so I can put more down…?…) and the attorneys don’t like this discrepency. I think the mortgage man needs to change his numbers to match divorce paper value. No we didn’t get an appraisal.

By: cara durschlag

cara durschlag — Sat, 05 Jun 2010 15:33:59 +0000

Can I sell my house to a friend below market value and if so would
I do a gift of equity letter to the bank for her to get a mortgage?

By: Rebecca Rivera

Rebecca Rivera — Fri, 05 Jun 2009 02:23:16 +0000

I am putting down $15,000 and then in 4 years I have to get my own mortgage, so then I would like to have 20% vseted in. $15,000 is only 10%, but if she gifts me the equity (about $15,000-$20,000.) Then I will not need the PMI. I will ask my CPA. I have to find out if she should gift me equity now or in 4 years. Thanks!

By: DDFD at DivorcedDadFrugalDad

DDFD at DivorcedDadFrugalDad — Thu, 04 Jun 2009 11:31:33 +0000

I learn something new every single day- thank you!

By: Frugal Dad

Frugal Dad — Wed, 03 Jun 2009 22:55:52 +0000

@Rebecca: PMI is typically not required as long as your loan does not exceed 80% of the value of the home. In the scenario you provided your borrowing about 88% of the value, but since your grandmother is holding the mortgage you may be able to avoid PMI, since that is more an institutional insurance requirement should you default on the loan. If you have a relationship with a CPA I would ask them, or a Realtor in your area should be able to provide more guidance.

By: Rebecca Rivera

Rebecca Rivera — Wed, 03 Jun 2009 22:36:54 +0000

HI! I am going to buy my grandmother’s house. It is worth $170,000, I am paying $150,000. But she is going to hold the mortgage for 4 years, I wonder if I can still get this so when I get a bank mortgage I can avoid paying PMI. Should I ask my CPA or the IRS or a relator? Thanks!

By: Frugal Dad

Frugal Dad — Wed, 03 Jun 2009 21:01:49 +0000

@Kristy: I’m not sure if the laws on gift of equity for down payment vary state to state, so do ask mortgage lenders in your area. It might also depend on the type of mortgage – FHA may have different requirements on down payment funding than say, a conventional mortgage.

It does sound like an attractive way for parents to help their kids into a home without laying out cash (although, as you say, they will be giving up some equity).

By: Kristy @ Master Your Card

Kristy @ Master Your Card — Wed, 03 Jun 2009 20:22:15 +0000

Is this possible in all states? I’d be curious to know if such is allowed in Texas as our state is pretty strict with home stuff. Our equity loans in general are ridiculous compared to other states. It does sound like an excellent option for those buying…though those selling may take a loss on the property, per the example you’ve given. I wonder if there’s an undisclosed arrangement between the parents and the kids here to pay them over the years up to a certain point. Regardless, it’s something I’ll have to ask my mortgage people about to see if we do. I know a lot of my clients have had the opportunity to buy houses from their family members but missed it because they didn’t have a down payment. I love learning something new! Thank you!

By: Frugal Dad

Frugal Dad — Wed, 03 Jun 2009 20:17:07 +0000

@Kevin: Thanks – I had forgotten about the increase to $13k this year. I’m going to update the article with the corrected figure after giving you credit here.

By: Kevin M

Kevin M — Wed, 03 Jun 2009 19:34:22 +0000

Actually, for 2009, the gift tax exclusion is up to $13,000. So in your example, only $13,000 of the $65,000 of equity would be considered a taxable gift, calculated as such:

$65,000 equity split between the in-laws = $32,500 each. $32,500 – $13,000 to daughter – $13,000 to son-in-law = $6,500 taxable gift for each in-law, or $13,000 total.

“The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, and $13,000 on or after January 1, 2009, the annual exclusion applies to each gift.”

Per this link: http://www.irs.gov/businesses/small/article/0,,id=108139,00.html