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 represents a portion of the seller’s equity in the property, and is transferred to the buyer as a credit in the transaction.

A gift of equity

• is permitted for principal residence and second home purchase transactions;

• can be used to fund all or part of the down payment and closing costs (including prepaid items); and

• cannot be used towards financial reserves.

The acceptable donor and minimum borrower contribution requirements for gifts also apply to gifts of equity. See B3-4.3-04, Personal GiftsB3-4.3-04, Personal Gifts. When a gift of equity is provided by an acceptable donor, the donor is not considered to be an interested party and the gift of equity is not subject to Fannie Mae’s interested party contribution requirements (see B3-4.1-02, Interested Party Contributions (IPCs)B3-4.1-02, Interested Party Contributions (IPCs)).

The following documents must be retained in the loan file:

• a signed gift letter (see B3-4.3-04, Personal GiftsB3-4.3-04, Personal Gifts), and

• the settlement statement listing the gift of equity.