2007-06-21 08:14:50 · 6 answers · asked by Angie 1 in Business & Finance ➔ Renting & Real Estate
Gift of Equity
If you are thinking of purchasing a home from a family member or a relative, a gift of equity can help you with the down payment.
The lender will normally require a signed letter with the transaction details included on it.
Within the signed letter, or purchase contract, the seller may agree to pay for the buyer's closing costs, resulting in little or zero out-of-pocket expenses for the buyer.
In this transaction, the sales price is typically the appraised value of the home. The lender funds part of that sales price (usually what is owed on the property), and the remainder is considered a "gift" from the seller to the buyer.
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. http://www.investopedia.com/terms/g/gift_of_equity.asp
2007-06-21 08:17:57 · answer #1 · answered by wizjp 7 · 1⤊ 0⤋
Gift of equity means that the seller is a family member and is giving you the equity in the home (the amount that is above the loan amount) without expectation of being repaid. If it's not a family member, it's not a gift of equity, it's just a lower sale price. There is no real place to find out more information about it, because it's just a description of the term.
2007-06-21 08:19:07 · answer #2 · answered by Scott Drescher 2 · 0⤊ 0⤋
I assume this purchase is from a family member or friend who is selling it to you considerably below market value. The seller may trigger a gift tax liability by gifting you a huge sum of equity at one time. The seller is allowed to gift to any one individual $12,000 in cash or value in any given year, subject to the maximum lifetime total.
You should engage in a 'mortgage' type contract in which the seller holds a second (or first if applicable) mortgage on the property. If the seller forgives $12,000 of the value of the mortgage each year, he/she can avoid the gift tax liability.
I recommend that you speak to a tax attorney for further clarification on how to legally handle this.
2007-06-21 08:19:06 · answer #3 · answered by acermill 7 · 0⤊ 0⤋
That is a question for an accountant.
2007-06-21 08:17:36 · answer #4 · answered by QuarterRoy 2 · 0⤊ 0⤋
most lender will not lend on something of that value, I may be wrong.
2007-06-21 13:37:55 · answer #5 · answered by ron d 3 · 0⤊ 0⤋
where is this house located.....thats really cheap
2007-06-21 08:30:59 · answer #6 · answered by Anonymous · 0⤊ 0⤋