09/03/2026
🏡 What Exactly Is a Gift of Equity?
I saw a post yesterday where there was some confusion—even among mortgage professionals—about how a gift of equity works.
So I figured if people in our industry have questions about it, homeowners and buyers probably do too. 😊
Here’s the simple version:
Let’s say Mom and Dad own a home and want to sell it to their daughter for $500,000.
Instead of selling it to her and then handing her cash to help with the purchase, they may be able to give her a portion of the equity they already have in the home.
For example:
🏡 Purchase price: $500,000
🎁 Gift of equity: $50,000
💰 Loan amount: $450,000
That $50,000 gift of equity may be able to help cover the buyer’s down payment and closing costs without Mom and Dad having to write their daughter a $50,000 check.
The equity is transferred as a credit within the transaction. On an eligible loan, a gift of equity can be used toward all or part of the down payment and closing costs.
But here’s another way a gift of equity can be especially helpful.
Let’s change the numbers:
🏡 Purchase price: $500,000
🎁 Gift of equity: $100,000
💰 Loan amount: $400,000
Now the first mortgage is at 80% loan-to-value (LTV).
On an eligible conventional loan, getting to 80% LTV can mean no private mortgage insurance (PMI) is required from the start. 🎉
So in this example, the gift of equity isn't just helping the buyer with the money needed to purchase the home—it may also eliminate the additional monthly cost of PMI.
And THAT is one of the reasons understanding how a gift of equity works can be so valuable.
Of course, there are guidelines around who can give the gift, how it needs to be documented, occupancy, property type and loan program, so the transaction needs to be structured correctly.
But it’s a great reminder that sometimes the money needed to purchase a home doesn’t have to look quite the way people assume it does.
And apparently, this is one of those guidelines that’s worth talking about—even inside the mortgage industry. 😉
*Loan guidelines vary by program, lender and individual circumstances. All loans are subject to qualification and underwriting approval.
