With the Denver market up 123%, since its peak in 2006, we have amazing wealth in equity. How do you tap into that wealth of equity, where you can give a gift of equity to your children, or to other family members? We can transfer wealth through real estate using gifts of equity. So what does that mean? And maybe what are some of the limitations with that?
Let's say I want to sell a home for market value. That home is $800,000 and I own that home and maybe I own that home outright, and I want to give it to my kid. I want to give them a head start and I want some money out of that home, but I don't need all $800,000 and I want to give them a head start. Maybe it's a grandchild or a niece or a nephew, and you want to give them the opportunity, maybe an opportunity you never had.
You can do that with real estate.
You can give them that gift of equity.
If the market value of that home is $800,000. I can sell it to them for $800,000, but then give them a gift of equity of whatever you want. 5%, 10%, 20%, a dollar amount, maybe it's $200,000. That means as a receiver, maybe as, as your kid or as your niece or nephew or grandchild, I can get a loan for the $600,000 and not bring any money to the table. Maybe I'm just starting out with my career. I don't have a lot of money saved, but I have a good job. I can qualify for the $600,000. You just gave me such a blessing and such a head start, but I need to know there are some limitations, depending on the loan program I use first off, it has to be a family member.
FHA does allow gifts that are either from a close friend or an employer, even, but in this case, a gift of equity, not just a gift of a check, needs to come from a family member.
FHA also has another hook.
If you have a credit score under 600, you cannot receive a gift of equity as your down payment. You have to still bring your down payment. So that's something that needs to be considered, and certainly may be a reason to get into our free credit optimization program. So let's talk about VA because VA has a benefit that if I can put a little money down. You get a reduced funding fee. Now, if you have any disability, you have no funding fee. So that becomes irrelevant. But if you're not disabled, you have a funding fee. And if you put 5% down or more, that funding fee is reduced. A gift of equity does not go towards that. You will still pay whatever the full funding fee is for your situation.
Conventional, conventional has a situation where the borrower typically needs to bring their own minimum funds. A lot of times that's 5% or even 3% for first-time home buyers. The gift of equity needs to be a minimum of 20% down in order for the buyer not to bring any of their own money. FHA and VA don't require that the gift can be just the minimum down, but in the case of conventional, the buyer still has to bring, say 5% down.
If the giver of the gift is only giving 10%, but if the gift is more than 20% of the purchase price, the buyer can bring no money of their own. So there are some fantastic opportunities in today's real estate market to continue generational wealth.
If you want to know more about gifts of equity, I would love to sit down and talk through a program and a solution with you. We'd love to go to work for you
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