Leveraging a Gift of Equity to Buy a Home – An Insightful Guide

Davis Legacy Ventures


person handing out a present

Are you having trouble coming up with the money to purchase your ideal house? Fear not, there is a solution you might not have thought of: a gift of stock. This tactic is frequently disregarded, particularly when families are selling real estate to close relatives. It’s a terrific strategy to make housing more affordable while easing financial pressure.

When a property is sold for less than its market value and the difference is given to the buyer as a gift, this is known as a gift of equity. This equity serves as a down payment, making it a practical method for lowering the loan balance and monthly payments. It might even make mortgage insurance unnecessary.

Though it can appear easy, there are particular procedures that must be taken to make this process successful. The gift of equity is computed by deducting the agreed-upon price from the market value after an appraiser establishes the property’s fair market value.

The seller must then draft a gift letter outlining the gift’s terms and confirming that there is no need for reimbursement. It’s critical to carefully follow these instructions because this letter is necessary for loan approval.

Regarding the effects on taxes, the gift of equity strategy is brilliant. Both the buyer and the seller can typically benefit greatly from tax advantages. To make sure that all advantages are taken advantage of, it is crucial to speak with a tax professional.

Before making any financial decisions, including the gift of equity approach, it’s crucial to weigh the possible drawbacks. If market values fall, sellers would see a reduced return on their investment while buyers might have trouble selling the home. It’s also important to be aware of any specific guidelines that lenders may have about equity gifts.

Although the gift of stock strategy has many advantages, it is not a universally effective solution. Therefore, it’s essential to determine if it complements your financial goals before moving forward.

My responsibility as your mortgage originator is to help you navigate these changes and locate the best mortgage rate. It’s critical to weigh all of your alternatives and choose the one that best fits your unique circumstances, especially when buying a home, which is a big decision. You can trust that I will work hard to get you the greatest price.

Reach out today! Call or text me at 863-694-1232 or email me at [email protected].

Jonathan K. Davis, NMLS# 314966

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