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"Gift of Equity"

Discussion in 'Urgent - Help Needed' started by redfish, Oct 14, 2011.

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  1. redfish

    redfish Senior Member

    22
    Sep 2, 2007
    Professional Status:
    Certified Residential Appraiser
    State:
    Michigan
    Not real urgent, but I was just wondering how these contributions are made.

    Does the "gift of equity" in a non arms length transaction get credited back to the buyer/borrower post closing from the proceeds to the seller or are these contributions made prior to the close escrow. Wouldn't the seller need the proceeds from the sale in order to gift back to the buyer?
     
  2. Mr Rex

    Mr Rex Elite Member

    88
    Jan 12, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    North Carolina
    Typically no money changes hands, the seller is giving part of the equity for no cash consideration. A famly member sells you a house worth 100k and gives you a gift of equity of $25,000, you pay $75k at closing and everyone goes their merry way.
     
  3. JSmith43

    JSmith43 Elite Member

    18
    May 5, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    What Rex said. UW rules related to gifts of equity used to be quite dicy, can't imagine now.
     
  4. CindyR

    CindyR Member

    14
    Oct 26, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Arizona
    In my experience they simply inflate the sale price to unreasonable levels. Sometimes it is an exercise to avoid mortgage insurance.
     
  5. Peter LeQuire

    Peter LeQuire Elite Member

    45
    Jan 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Tennessee
    There are also sales in which the gift of equity does not come from the seller of the property, in which case lenders generally require that the donor have the springs to make the gift, and, prior to closing, verify that the funds have actually been transferred to the buyer.
     
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