How a Gift of Equity Can Help You Buy a Home with No Money Down

You’re ready to buy a home, but the down payment is standing between you and your dream house. Sound familiar? 

If you’ve got a family who’s willing to help, a gift of equity could be the solution you’ve been looking for. This strategy lets you buy a home with little to no money down, and it’s a great way to keep a property in the family.

Let me break down how it works, using a real-life example to show you how this simple, but powerful, tool can make homeownership a reality for you.

What Is a Gift of Equity?

A gift of equity happens when a family member sells you their home, and they use the equity in the property to cover your down payment and/or closing costs.

For example: Say your parents are selling you their house, which is worth $300,000. They owe $150,000 and want their profit to be $100,000. The difference between what they owe and the sale price can be used to cover your down payment or closing costs. That means they could gift you $50,000 in equity to cover your down payment and closing costs. 

How It Worked for One of My Clients

One of my clients was facing a situation where her parents were selling their home, and she wanted to buy it. However, she had recently invested a lot of money back into her own business and didn’t have the cash for the down payment.

Using the gift of equity, we were able to structure the deal so her parents could cover the down payment and the closing costs, which totaled around $18,500. This meant she could buy the home without coming out of pocket.

Here’s the breakdown:

• Home price: $300,000

• FHA loan with a 3.5% down payment: $10,500

• Closing costs: $8,000

• Gift of equity: Parents covered both the down payment and closing costs

It worked because the home appraised for the right amount, and the parents were able to use the equity in the home to help their daughter without needing to dip into their own savings.

Pro Tip: If you’re using a gift of equity, make sure it’s seems reasonable for the home to appraise for the right amount. The deal can’t go through unless the value supports the sale price and any additional gift amount.

How Does It Work with Different Loan Types?

Each loan type has different rules about what you can use the gift of equity for, so let’s go over a few of the major ones.

FHA Loans

For FHA loans, the minimum down payment is 3.5%. If the home appraises correctly, the gift of equity can cover the entire down payment and the closing costs. FHA loans also have a higher cap on seller concessions—up to 6% of the purchase price. This means the seller (your family) could cover most or all of the closing costs as well.

Conventional Loans

For conventional loans, the seller can contribute a set amount towards your closing costs. If you’re putting down between 3%–5%, the seller can contribute up to 3% of the home’s purchase price toward closing costs. If you’re putting down more than 5%, the seller can contribute 6%, and if you’re putting down 25% or more, they can contribute up to 9%.

Pro Tip: If you’re using a conventional loan and have a large down payment, you could eliminate private mortgage insurance (PMI), saving you money in the long run.

VA Loans

VA loans don’t have specific guidelines for a gift of equity, but as long as the deal is structured properly, it can still work. With VA loans, most of your closing costs can be covered by the seller, and in some cases, the seller can even pay off debts that are required for the loan. Plus, you don’t need a down payment for a VA loan, so the gift of equity would likely be used to cover the closing costs.

Pro Tip: Even if you're buying from family, make sure to get a home inspection. You don’t want to skip out on this step just because you trust the seller. It’s always better to be sure about the home’s condition.

Important Things to Keep in Mind

Before jumping into a gift of equity, there are a few things you need to consider.

One thing to keep in mind is that the loan is based on the full sales price, not the reduced price after the gift of equity. So if the house is sold for $300,000, and your family is gifting you $50,000, your loan will be based on the full $300,000, not $250,000. This is important to keep in mind when budgeting for the loan.

Finally, it’s important to note that each loan type has different rules about how much the seller can contribute to closing costs, so make sure you understand these guidelines before making the offer.

FAQ

What is a gift of equity in real estate?

A gift of equity is when a seller, who is also a family member, sells their home to a buyer (also a family member). The difference between what they owe and the sales price (the equity) is then gifted to the buyer to help cover their down payment and/or closing costs.

Can a gift of equity be used for closing costs?

Yes, a gift of equity can cover both the down payment and closing costs. FHA loans, for example, allow up to 6% of the purchase price to be used for closing costs.

Can I buy a home from my family without a down payment?

Yes, using a gift of equity, you can buy a home from a family member with little or no money down. The family member can cover the down payment and closing costs with the equity in the home, as long as the home appraises for the right value.

Bottom Line

A gift of equity is a fantastic way to buy a home with little or no money down—especially if you have family members who are willing to help. It’s a simple solution that can make a big difference, allowing you to stay in the family home and build long-term wealth. Just be sure to understand the rules around the loan program you’re using and remember to plan for things like appraisals and home inspections.

Rebecca Richardson, “The Mortgage Mentor,” is a nationally recognized mortgage advisor based in Charlotte, NC, lending in multiple states across the U.S. With over 20 years of experience, she helps buyers navigate home financing with confidence—whether you're buying your first home, investing, or navigating a major life transition. Rebecca is especially known for her work with veterans, real estate investors, and clients with complex financial needs. As a top-producing loan officer and sought-after educator, she’s a trusted guide for buyers and real estate professionals nationwide.