Buying a Home From Family
A home that stays in the family can come with a financial advantage most buyers don't have: the seller may be able to give you part of the home's equity as part of the purchase.
It's called a gift of equity. In a qualifying transaction, that gift can help cover the down payment and eligible closing costs, without your relative having to give you the money in cash first. It can make a meaningful difference in how much you need to bring to closing.
The opportunity is worth understanding before your family settles on the price or transfers ownership. I'm Blake Overton with Gershman Mortgage, and I work with homebuyers across Iowa on the mortgage side of their purchase.
A POSSIBLE FINANCIAL ADVANTAGE
A gift within the purchase
Eligible equity is documented as a gift, rather than cash first being transferred to the buyer.
WHAT MUST FIT
Qualifying donor relationship · Loan-program requirements · Purchase price and appraisal · Gift and closing documentation
Potential help with the down payment and eligible closing costs
Not automatic. Cash reserves and other purchase expenses may still be required.
Scheduling opens Calendly.
How does a gift of equity help you buy?
Instead of the seller transferring money to your bank account, an eligible amount of the equity they own in the home is given to you within the purchase. The gift is documented as part of the transaction.
Under Fannie Mae's applicable conventional-loan rules, a qualifying gift of equity can be used for down payment and eligible closing costs. It can't substitute for cash reserves that the loan requires you to keep after closing. Other mortgage programs have their own rules, and not every family relationship qualifies as a gift donor.
So the benefit is real, but it has to be an eligible gift, not just a number someone writes into the contract.
Selling below market value isn't automatically the same thing
Your relative can choose an agreed price. The appraisal is a separate look at the home's value for the mortgage. If the house appraises for more than the price, that difference doesn't automatically turn into a down payment you can use.
To use a gift of equity, the loan program needs to allow it, the seller's relationship to you must qualify, and the gift needs to be shown correctly in the purchase and closing documents. The price, appraisal and gift amount need to fit together.
That's why I'd start with the price your family has discussed and whether the seller intends to give equity or simply sell for less. They can sound alike in conversation but mean different things when the loan is underwritten.
Could you still need money out of pocket?
Yes. A gift of equity can help with certain amounts due at closing, but it doesn't erase the appraisal, inspection, prepaid interest, taxes, insurance or other purchase expenses. Some bills arrive before closing. Your loan may also require money left in reserve.
A family seller might separately agree to pay some buyer closing costs. Seller-paid costs and a gift of equity are not interchangeable, and the loan must allow the way each is handled. I've explained the broader seller-credit idea in my seller-concessions article.
The useful question isn't just whether you can use equity. It's what you'd actually have to pay, and when.
How does a family sale get to closing?
You still need a purchase agreement, an acceptable property and appraisal, loan approval, and a proper transfer of ownership. A gift of equity generally needs a signed gift letter and documentation showing how it appears in the sale. The seller's existing mortgage, if any, must also be accounted for at closing.
Because you know the seller, it can be tempting to handle the paperwork informally. Don't let that create a problem with the financing or title. An Iowa real estate attorney can address the agreement and legal issues; the abstract, title and closing professionals handle their respective work. My Iowa abstract guide explains that part of the process.
What if the home is inherited or still in an estate?
That's a different starting point from a family member selling a home they currently own. The person signing the sale needs legal authority to transfer the property, and estate or title issues may need to be resolved first. Those are matters for an estate or real estate attorney. The mortgage side can be considered once the proposed ownership transfer is clear.
Before your family decides on the final terms
Tell me who owns the property today, your relationship to the seller, the price you've discussed and whether a gift of equity is intended. If there's an existing mortgage or a particular closing date in mind, that helps frame the financing question too.
You can start with a call or email rather than an application. There's no need to send sensitive financial documents through an ordinary email.
Related private-purchase paths: Already Found the Home? · Buying Directly From the Owner (FSBO), if the family is handling the sale without agents.
About Blake · Blake Overton, Mortgage Loan Originator / Producing Branch Manager, Gershman Mortgage
NMLS #1651000 · Gershman Mortgage NMLS #138063 · Equal Housing Lender