I’m in the process of buying a house from my grandmother’s estate (she’s deceased and it’s administered by my Uncle). I’m in the process of getting a mortgage, and the loan officer recommended a “gift of equity” during the home purchase. Since I would be buying the property for quite a bit less than it’s worth.
The value of the home is about $300k (pending the appraisal). I would be purchasing it for $220,000, the loan amount would be $205k, with a $15k down payment. About $80k would qualify as a gift of equity.
The only real advantage I see is, I won’t need a 20% down payment + closing costs to avoid PMI. It seems to just get around that 80% loan to value ratio, since the loan is significantly less than the value.
But I’m worried about the tax implications. There’s all kinds of conflicting information on the web about whether the seller (my grandmother’s estate) would be subject to taxes on the gift of equity, would they have to file a special tax form, etc. I’ve even read that estates CAN’T give gifts of equity. It’s all extremely confusing.
Does anyone know:
Is it worth the trouble to do the gift of equity? PMI isn’t the end of the world.
Would the seller be required to file any tax forms for a gift of equity around $80k? Would there be any additional capital gains taxes if I were to sell the property? Why is this so confusing and why is there so much conflicting info on this? lol
tl;dr I can’t figure out how a gift of equity works, please help!