What is 'Gift Of Equity'
The sale of a home made to a family member or someone with whom the seller has had a previous relationship, at a price below the current market value. The difference between the actual sales price and the market value of the home is called the gift of equity. Most lenders allow the gift to count as a down payment on the home.
BREAKING DOWN 'Gift Of Equity'
A gift of equity requires a gift of equity letter that is signed by both the seller and the buyer. A gift of equity can have tax consequences, as it could impact the asset's cost basis for the new homeowner and have capital gains implications for the seller.