Does a HELOC replace my mortgage?

No — that's the main difference from a cash-out refinance. A HELOC sits behind your existing mortgage as a second lien, so your original loan stays exactly as it is.

Can I borrow again after paying down a HELOC?

Yes, during the draw period — that revolving flexibility is the defining feature. After the draw period ends, the line enters repayment and you pay the balance down.

HELOC or cash-out refinance — which is better?

It depends on your current mortgage, how much you need, and whether the need is ongoing. If you want to keep your mortgage and value flexibility, a HELOC often fits; for a single lump sum, a cash-out refinance may be better.

Gift of Equity Explained | MortgageQuote.com

What a gift of equity is

A gift of equity happens when someone, usually a family member, sells you their home for less than its market value, and the difference between the sale price and the market value acts as a gift toward your purchase. Instead of gifting cash, they gift you equity in the property. This can help you meet down payment requirements without transferring actual money, since the built-in equity serves that role.

How it works

In a typical gift of equity, the home is appraised at market value, and the family sells it to you at a lower agreed price. The gap between the two is documented as the gift of equity. That gift can count toward your down payment, potentially reducing or eliminating the cash you need to bring. The transaction is documented with a gift letter and handled through the normal purchase and closing process.

What to know

Gifts of equity have specific requirements that vary by loan program, including how they’re documented and who qualifies as an eligible donor (typically close family). There can also be tax and legal considerations for the person gifting the equity, so professional guidance matters for them. For you as the buyer, the benefit is meeting down payment needs through equity rather than cash, but the transaction must be structured correctly.

Getting it right

Because a gift of equity involves an appraisal, specific documentation, and program rules, and tax considerations for the giver, it’s important to structure it properly. A licensed loan originator can explain how a gift of equity would work for your loan program and what documentation is needed, and the parties may want tax or legal advice on their side. Done right, it’s a meaningful way for family to help.

This article is for general educational purposes and is not financial, legal, or tax advice, nor a commitment to lend or an offer of any specific rate or term. Consult a licensed professional about your situation. MortgageQuote.com · NMLS #1967971. Equal Housing Opportunity.

Frequently asked questions

What is a gift of equity?

When a family member sells you their home for less than market value, and the difference acts as a gift toward your purchase. They gift you equity in the property rather than cash.

How does a gift of equity help me buy?

The gifted equity can count toward your down payment, potentially reducing or eliminating the cash you need to bring, since the built-in equity serves that role.

Who can give a gift of equity?

Typically a close family member, though eligibility and documentation requirements vary by loan program. It’s documented with a gift letter and an appraisal establishing market value.

Are there tax considerations?

There can be, particularly for the person gifting the equity. Professional tax or legal guidance is wise for them. A licensed originator can explain the financing side.

What is a gift of equity?

It is when a seller — often a family member — sells a home for less than its value, with the difference counting as the buyer’s equity or down payment. It has documentation rules, which a broker can help you handle.

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