1. What is Gift of Equity?

Gift of equity occurs when a property owner sells their home to a buyer for less than the current market value. The difference between the market value and sale price is considered a gift from the seller to the buyer.

2. How Does the Calculator Work?

The calculator uses the simple equation:

Where:

• Fair Market Value — Current appraised value of the property
• Sale Price — Actual price the property is being sold for
• Equity — The amount being gifted to the buyer

Explanation: This calculation shows how much equity is being transferred from seller to buyer as a gift.

3. Importance of Gift of Equity

Details: Gift of equity can help buyers with down payments, reduce mortgage amounts, and help family members purchase homes. It's often used in intra-family transactions.

4. Using the Calculator

Tips: Enter the current fair market value of the property and the actual sale price. Both values must be positive numbers with the sale price less than the market value.

5. Frequently Asked Questions (FAQ)

Q1: Is gift of equity taxable?
A: For the buyer, it may be considered taxable income if it exceeds annual gift tax exclusion limits. Sellers should consult a tax professional.

Q2: Can gift of equity be used for down payment?
A: Yes, many lenders accept gift of equity as all or part of the down payment.

Q3: Do you need an appraisal for gift of equity?
A: Typically yes, lenders will require a current appraisal to verify the fair market value.

Q4: Can gift of equity be used with any mortgage?
A: Most conventional, FHA, and VA loans allow gift of equity, but requirements vary.

Q5: Are there limits to gift of equity?
A: Lenders may limit how much can be gifted, typically requiring the buyer to have some of their own funds in the transaction.