As parents, we would do anything for our children. And the gift of equity could be one of the most generous gestures from a mother or father.
The gift of equity is a way to sell your house to a family member for less money than the house is worth. You can give some of the value of the house to a relative for free. That way, as long as they can afford the monthly mortgage payments, a family member may be able to buy the house even if they don’t have enough cash saved for a down payment or for closing costs.
Who is considered a “family member”? Lots of people. In addition to your children, anyone related to you by blood or marriage is considered a family member. If you are a person’s legal guardian, they are also a member of your family. Fiancés and domestic partners are family too!
A reminder on how home equity works.
Generally, the equity in your home is simply the appraised value of your house minus what you owe on your existing mortgage loan. For example, if your home is worth $200,000 and you owe $100,000 on the mortgage, you have $100,000 in home equity. (Read more about the basics of home equity here.)
What you can give as a gift of equity.
If you wanted to sell your house to your daughter, you could give her your equity in the home to use as a down payment or to pay closing costs.
Assistance making a down payment can help people avoid having to buy pesky private mortgage insurance (PMI), thereby reducing their monthly payments and helping them start to rebuild equity. If you don’t want to give all your equity to a family member, you can just give a portion. It might be time to start playing favorites. Just kidding!
All jokes aside, the gift of equity comes from you, your home and your heart. If you’re ready to get started, or have questions about giving the gift of equity, we’re here to simplify the steps towards a straightforward refinance.
Ditech is not a financial advisor and the ideas outlined above are for informational purposes only. They are not intended as investment or financial advice and should not be construed as such. Consult a financial advisor before making decisions regarding important personal financial matters, and consult a tax advisor regarding the deductibility of interest and tax implications.