A straight answer
My parents want to sell me their house below market value. Can the equity count as my down payment?
The direct answer
Yes. Fannie Mae calls the difference a gift of equity, and it can pay all or part of your down payment and closing costs. I offer the purchase loan and put the financing together. I'm Zach von der Linden (NMLS 1652805), a mortgage broker with West Capital Lending, based in San Clemente.
The sale is written at the full price, and the gift shows up as a credit to you on the settlement statement. The lender needs a gift letter, an appraisal that supports the value, and a file that says who is selling to whom. Text or call me with the state, the price you have in mind and what you think the home is worth. I work with buyers in California, Utah, Oregon and Arizona.
Zach von der Linden, mortgage broker and Branch Manager, West Capital Lending · NMLS 1652805
Wholesale pricing · California, Utah, Oregon and Arizona
5.0 across 66 reviews on Experience.com (read on 2026-09-24) · Text reaches Zach directly · Last updated 2026-10-17
Buying a family home below market value? Text me the state, the price you have in mind and what you think the home is worth.
No credit pull happens from a text or a call. Texts and calls go to Zach's cell.
What happens after you text me?
Texts go straight to my cell, and I answer them myself when I'm free. I'll ask for the few details that actually matter, tell you whether the structure looks worth pursuing, and explain the next step. If I don't think the loan fits, I'll tell you that too.
A text or phone conversation does not pull your credit.
What a gift of equity is
Fannie Mae's guide defines it in one sentence: "A “gift of equity” refers to a gift provided by the seller of a property to the buyer" (Fannie Mae Selling Guide B3-4.3-05). The gift is part of the seller's equity in the home, and it is applied to you as a credit in the transaction.
The gift can fund all or part of your down payment and closing costs, including prepaid items. It cannot be your reserves: the guide says "A gift of equity may not be used for financial reserves." If the program asks for money left over after closing, that money has to be yours.
A gift of equity "is permitted for principal residence and second home purchase transactions." It is for a home you will live in, or a second home. The guide's gift rules do not allow gifts on an investment property, so a below-market sale of a rental you will not live in is a different conversation.
Who can give it
The guide says "The acceptable donor and minimum borrower contribution requirements for gifts also apply to gifts of equity." The donor list is in the personal-gifts topic: "a relative, defined as the borrower's spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship," or a non-relative with a familial relationship, such as a domestic partner, a fiance, a former relative, or someone "with a long-standing familial-like or mentorship relationship with the borrower" (Fannie Mae Selling Guide B3-4.3-04).
Parents are on that list. So are grandparents, siblings, aunts and uncles, and in-laws, because they are related by blood or marriage. A family friend selling you a house at a discount is not an acceptable donor unless the relationship fits the familial-like definition, and the lender decides that from the facts.
Because the seller is an acceptable donor, "The donor of a gift of equity is not considered an interested party to the transaction," and the gift "is not subject to Fannie Mae’s interested party contribution requirements." That matters: a seller credit from a stranger is capped, and a gift of equity from your parents is not capped by that rule.
What has to be on paper
The contract. The price in the purchase contract is the full price you and your parents agree on, not the discounted amount you are financing. The gift is the difference between that price and what you actually pay, and it appears as a credit from the seller on the settlement statement. Fannie Mae requires "the settlement statement listing the gift of equity" in the loan file.
The gift letter. Fannie Mae requires "a signed gift letter," and the personal-gifts rules apply to it: the amount, and the donor's statement that no repayment is expected. If your parents expect to be paid back, it is not a gift, and the file has to say so.
The appraisal. The lender orders an appraisal the way it does on any purchase, and for a purchase Fannie Mae's loan-to-value is figured on the lower of the sales price or the appraised value. If the appraisal comes in below the contract price, the gift and the loan are both measured against the appraisal, so the price your parents set should be one the appraiser can support. I ask what the home is worth before anyone signs a contract for that reason.
Your own money. On a one-unit home you will live in, Fannie Mae requires no minimum contribution from your own funds, so the gift of equity can be the whole down payment. On a two- to four-unit home or a second home, the guide can require some of your own funds above a loan-to-value it sets, and I confirm that against your file. Can my parents help me with the down payment? covers cash gifts, co-signing and buying together.
How FHA handles it
FHA allows gifts of equity between family members. HUD's Handbook says "Only Family Members may provide equity credit as a Gift on Property being sold to other Family Members," and the gift letter has to carry "the donor’s name, address, and telephone number; the donor’s relationship to the Borrower; the dollar amount of the Gift; and a statement that no repayment is required" (HUD Handbook 4000.1, II.A.4.d.iii(F)(4)).
HUD's Family Member definition is a list: child, parent or grandparent, including step and foster relationships; spouse or domestic partner; adopted and foster children; brothers and sisters, including step-siblings; uncles and aunts; and sons-, daughters-, fathers-, mothers-, brothers- and sisters-in-law. A cousin is not on it.
FHA has a second rule that matters on a family sale. HUD calls a sale between family members an identity-of-interest transaction and limits the loan-to-value on a principal residence in that case, to a figure the Handbook states and this page does not print. The limit does not apply when you buy a family member's principal residence as your own principal residence, or when you buy a family member's property in which you have been a tenant for at least six months before the contract, with a lease or other written evidence. Buying the house your parents live in, to live in yourself, fits the first exception.
The questions I do not answer
Whether a gift of equity has gift-tax consequences for your parents, and how a below-market sale affects their own tax position, are questions for their tax professional. I am not the right person for that advice, and I will say so.
How the deed is titled, and whether anyone else in the family needs to sign off on the sale, are questions for a real estate attorney or the escrow officer. I handle the mortgage side, and I coordinate with both.
What to text Zach
- The state and city the home is in, and whether you will live in it.
- The price you and your parents have in mind, and what you think the home is worth.
- Who the seller is, and how you are related.
- Whether there is a mortgage on the home now, and roughly what is owed.
- Whether you have your own savings for closing costs and reserves.
Send the gift letter and the contract through the secure process I give you when we talk, not by ordinary text. A conversation does not pull your credit.
Questions people ask next
Can the gift of equity be my entire down payment?
On a one-unit home you will live in, yes under Fannie Mae's rules, which require no minimum contribution from your own funds. On a two- to four-unit home or a second home, some of your own money can be required above a loan-to-value the guide sets. Other programs set their own rules, confirmed before you count on them.
Does the house have to be appraised?
Yes. The lender orders an appraisal, and for a purchase Fannie Mae measures the loan against the lower of the sales price or the appraised value. If the appraisal comes in below the contract price, the gift and the loan are both measured against the appraisal.
Can a gift of equity pay my closing costs too?
Yes. Fannie Mae allows the gift to fund all or part of the down payment and closing costs, including prepaid items. It cannot be used for financial reserves.
Can my parents sell me their rental below market and call it a gift of equity?
Not under Fannie Mae's rule if you will not live in it. A gift of equity is permitted for principal residence and second home purchases, and gifts are not allowed on an investment property. If you will move into the rental as your home, that is a principal residence purchase.
Does FHA allow a gift of equity from my parents?
Yes. HUD allows equity credit as a gift only between Family Members, and a parent is on its list. The gift letter has to name the donor, the relationship, the amount and that no repayment is required. FHA also limits the loan on a sale between family members, with an exception when you buy a family member's principal residence as your own.
Will my parents owe gift tax?
That is a question for their tax professional, and I do not answer it. I handle the mortgage side and coordinate with their advisor and the escrow officer.
Does a gift of equity have to be repaid?
No. A gift is not a loan: the gift letter states that no repayment is expected. If your parents expect to be repaid, tell me, because the money is then treated as a loan and the file has to show it.
What clients say
Zach was so easy to work with. He made a stressful situation into a very positive experience for us and did push us one way or another. He listened to what we hoped we could accomplish and made it happen.
Word for word from Experience.com. Read all reviews.
Sources and checked dates
Sources: Fannie Mae Selling Guide, B3-4.3-05, Gifts of Equity (10/07/2020) (checked 2026-10-17) · Fannie Mae Selling Guide, B3-4.3-04, Personal Gifts (02/04/2026) (checked 2026-10-17) · Fannie Mae Selling Guide, B3-4.3-04, Personal Gifts (checked 2026-10-07) · Fannie Mae Selling Guide, B2-1.2-01, Loan-to-Value (LTV) Ratios (checked 2026-10-17) · HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (revised August 12, 2026; lenders must apply the changes by November 10, 2026), II.A.4.d.iii(F)(4) and II.A.1.a (checked 2026-10-17) · HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (revised August 12, 2026; lenders must apply the changes by November 10, 2026), II.A.2.b.ii(A) (checked 2026-10-17) · Supplied by Zach, September 9, 2026 (checked 2026-09-09).
Show each claim on this page, what it depends on, and the date it was checked (7)
| What we say, and what it depends on | Source | Checked |
|---|---|---|
| Fannie Mae Selling Guide B3-4.3-05, Gifts of Equity (10/07/2020): "A “gift of equity” refers to a gift provided by the seller of a property to the buyer." The gift reflects a portion of the seller's equity and is applied to the buyer as a credit in the transaction; it may fund all or part of the down payment and closing costs, including prepaid items, but not financial reserves. A gift of equity "is permitted for principal residence and second home purchase transactions;" "The acceptable donor and minimum borrower contribution requirements for gifts also apply to gifts of equity." "The following documents must be retained in the loan file: a signed gift letter," and "the settlement statement listing the gift of equity." When an acceptable donor provides the gift, "the gift of equity is not subject to Fannie Mae’s interested party contribution requirements." | Fannie Mae Selling Guide, B3-4.3-05, Gifts of Equity (10/07/2020) | 2026-10-17 |
| Fannie Mae Selling Guide B3-4.3-04, Personal Gifts (02/04/2026): an acceptable donor is "a relative, defined as the borrower's spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or" "a non-relative that shares a familial relationship with the borrower defined as a domestic partner (or relative of the domestic partner), individual engaged to marry the borrower, former relative, or an individual with a long-standing familial-like or mentorship relationship with the borrower." "A gift of equity may not be used for financial reserves." "The donor of a gift of equity is not considered an interested party to the transaction." | Fannie Mae Selling Guide, B3-4.3-04, Personal Gifts (02/04/2026) | 2026-10-17 |
| Fannie Mae Selling Guide B3-4.3-04: a borrower on a principal residence or second home may use a personal gift from an acceptable donor, including a relative, for all or part of the down payment, closing costs or financial reserves, subject to minimum borrower contribution rules; gifts are not allowed on an investment property. For a one-unit principal residence no minimum contribution from the borrower's own funds is required. The gift letter must state the amount and include "the donor's statement that no repayment is expected," and the lender verifies the funds in the donor's account or their transfer. | Fannie Mae Selling Guide, B3-4.3-04, Personal Gifts | 2026-10-07 |
| Fannie Mae Selling Guide B2-1.2-01, Loan-to-Value (LTV) Ratios (06/01/2022): for purchase money transactions, "Divide the original loan amount by the property value. (The property value is the lower of the sales price or the current appraised value.)" For refinance transactions, "Divide the original loan amount by the property value. (The property value is the current appraised value.)" "As defined in the LTV ratio, the original loan amount is the amount of the loan as indicated by the note." | Fannie Mae Selling Guide, B2-1.2-01, Loan-to-Value (LTV) Ratios | 2026-10-17 |
| HUD Handbook 4000.1, II.A.4.d.iii(F)(4), Standards for Gifts of Equity (Asset Requirements (TOTAL), 11/10/2026): "Only Family Members may provide equity credit as a Gift on Property being sold to other Family Members." "The Mortgagee must obtain a gift letter signed and dated by the donor and Borrower that includes the following: the donor’s name, address, and telephone number; the donor’s relationship to the Borrower; the dollar amount of the Gift; and a statement that no repayment is required." II.A.1.a, Family Member "is defined as follows, regardless of sex or legal marital status: child, parent, or grandparent; a child is defined as a son, stepson, daughter, or stepdaughter; a parent or grandparent includes a stepparent/grandparent or foster parent/grandparent; spouse or domestic partner; legally adopted son or daughter, including a child who is placed with the Borrower by an authorized agency for legal adoption; foster child; brother, stepbrother; sister, stepsister; uncle, aunt; or son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the Borrower." | HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (revised August 12, 2026; lenders must apply the changes by November 10, 2026), II.A.4.d.iii(F)(4) and II.A.1.a | 2026-10-17 |
| HUD Handbook 4000.1, II.A.2.b.ii(A), LTV Limitations Based on Identities of Interest (Loan-to-Value Limits, 02/16/2021): "An Identity-of-Interest Transaction is a sale between parties with an existing Business Relationship or between Family Members." The maximum loan-to-value for an Identity-of-Interest transaction on a principal residence is restricted to a figure the Handbook states (not printed here). "The [stated] LTV restriction may be exceeded if a Borrower purchases as their Principal Residence: the Principal Residence of another Family Member; or a Property owned by another Family Member in which the Borrower has been a tenant for at least six months immediately predating the sales contract. A lease or other written evidence to verify tenancy and occupancy is required." | HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (revised August 12, 2026; lenders must apply the changes by November 10, 2026), II.A.2.b.ii(A) | 2026-10-17 |
| Zach reports placing loans through more than one wholesale lender and program via his broker channel: the standard home equity line described on this site, plus conventional, government, bank statement and investment-property options. Individual lender names are kept off the public pages until the executed broker agreement for each is on file (California 10 CCR 2848(a)(3)). | Supplied by Zach, September 9, 2026 | 2026-09-09 |
Written for and accountable to: Zach von der Linden, Mortgage broker and Branch Manager, West Capital Lending.
Last updated 2026-10-17.
Verify him: NMLS Consumer Access, ID 1652805 · 66 reviews on Experience.com.
Sources for product claims are listed on this page, with the date each was checked.