Gift of Equity

Posted By: RegObsessed

Gift of Equity - 05/30/15 10:46 PM

Working on TRID and the business line asked where to disclose a gift of equity. I cannot find anything anywhere that discusses this type of gift.

If anyone can point me in any direction, it would be greatly appreciated.
Posted By: rlcarey

Re: Gift of Equity - 05/31/15 01:50 PM

What is a "gift of equity" and why would it be reflected on a closing disclosure? What does it have to do with the loan?
Posted By: Kathleen O. Blanchard

Re: Gift of Equity - 06/01/15 03:06 AM

Fannie Mae

Gift of Equity

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. The acceptable donor and minimum borrower contribution requirements for gifts also apply to gifts of equity. See B3-4.3-04, Personal Gifts.

http://wiki.fool.com/How_to_Give_Equity_as_a_Gift
Posted By: Kathleen O. Blanchard

Re: Gift of Equity - 06/01/15 05:53 AM

I would say you reflect the cash value, otherwise the math won't work and the forms would reflect incorrect funds due at closing.
Posted By: Truffle Royale

Re: Gift of Equity - 06/01/15 03:19 PM

In the current environment, a gift of equity is only shown on the HUD. They're fairly common in my world so I too am interested in knowing where you would put this on the LE.
Posted By: Kathleen O. Blanchard

Re: Gift of Equity - 06/01/15 04:19 PM

I would place the dollar amount that is reducing the purchase price on the adjustments and other credits line. That is where " gifts from family members" are placed.
Posted By: Truffle Royale

Re: Gift of Equity - 06/01/15 04:21 PM

Thanks, KB. I was hesitant to rely on the 'logical' answer without confirmation. wink
Posted By: Kathleen O. Blanchard

Re: Gift of Equity - 06/01/15 04:28 PM

From the commentary:

37(h)(1)(vii) Adjustments and other credits.

1. Other credits known at the time the Loan Estimate is issued. Amounts expected to be paid by third parties not involved in the transaction, such as gifts from family members and not otherwise identified under § 1026.37(h)(1), are included in the amount disclosed pursuant to § 1026.37(h)(1)(vii).


It has to be reflected or cash to close will be inflated.
Posted By: RegObsessed

Re: Gift of Equity - 06/03/15 08:06 PM

1. Other credits known at the time the Loan Estimate is issued. Amounts expected be paid by third parties not involved in the transaction.

Kathleen, based on the citation a Gift of Equity would not qualify to be shown in Adjustments/Other Credits because it is provided by the seller who IS involved in the transaction. That commentary states the parties are NOT involved in the transactions.
Posted By: CalifDreamin

Re: Gift of Equity - 11/04/15 09:29 PM

Has anyone come up with an answer to this. I agree it seems the easiest place to put it to make the numbers work, but then it doesn't work with what the rules state.

It wouldn't be a seller credit because it isn't a cost paid for by the seller.
Posted By: Kathleen O. Blanchard

Re: Gift of Equity - 11/04/15 09:51 PM

How did it work on the HUD, as a reduction in the sales price?
Posted By: CalifDreamin

Re: Gift of Equity - 11/04/15 10:20 PM

I'm being told they put it in "Other Credits" on the HUD. (This is the first that I've come across "gift equity," so I can't answer that from experience. The processor is telling me that the "adjustments and other credits" area is greyed out, so she has to put it somewhere else for it to fill to that box. Perhaps putting it as a seller credit is the only option? That's just not logical to me since seller credits to reflect costs being paid by the seller.

I'm going through the string describing what goes in seller credits, and again, that is reflective of specific costs as disclosed:

1026.37(h)(1)(vi) Seller credits. The total amount that the seller will pay for total loan costs as determined by paragraph (f)(4) of this section and total other costs as determined by paragraph (g)(5) of this section, to the extent known, disclosed as a negative number, labeled “Seller Credits”;

Then 1026.37(f)(4) is the total of (f)(1) through (f)(3) which is origination charges, services you cannot shop for, and services you can shop for.

1026.37(g)(5) is the total of taxes/other gov't charges, prepaids, initial escrow, and other costs.
Posted By: CalifDreamin

Re: Gift of Equity - 11/04/15 10:37 PM

The processor did find a way to get it on the adjustments and other credits line - it's showing as a negative $10,000, so I think we are fine. She figured out how to add an L4 line.
Posted By: Kathleen O. Blanchard

Re: Gift of Equity - 11/04/15 10:55 PM

It just doesn't seem like an anticipated situation. I guess we will all find out!
Posted By: Cornfed Turtle

Re: Gift of Equity - 11/05/15 03:17 PM

On the LE, processor put it on adjustments and other credits. Told to move to seller credits.
Posted By: ILMF2016

Re: Gift of Equity - 07/12/16 06:20 PM

Was the final decision to put Gifts of Equity by the Seller under Seller Credit as a negative number?
Posted By: Dodge

Re: Gift of Equity - 09/23/16 01:35 PM

I have a Loan Estimate that needs to go out today. There is a Gift of Equity by the seller, should this credit go into the Seller Credit field?
Posted By: John Burnett

Re: Gift of Equity - 09/23/16 02:24 PM

When will the buyer receive it?
Posted By: Dodge

Re: Gift of Equity - 09/23/16 03:21 PM

At closing
Posted By: John Burnett

Re: Gift of Equity - 09/23/16 03:45 PM

The include it on the LE as a seller credit, if it will be a reduction in the funds that the buyer has to bring to the table (and a reduction in the amount the seller will receive from the table).
Posted By: Dodge

Re: Gift of Equity - 09/23/16 04:08 PM

Thank you!
Posted By: rlcarey

Re: Gift of Equity - 09/23/16 07:55 PM

Define Gift of Equity by the seller please. Sounds like a lower sales price to me.
Posted By: RR Joker

Re: Gift of Equity - 09/23/16 07:56 PM

There was another thread about this subject and that was the general concensus, Randy.

Hard equity [think lease to own] is one thing, but I agree that a 'gift' of equity is a concession.
Posted By: CalifDreamin

Re: Gift of Equity - 09/23/16 08:00 PM

From Fannie: 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. The acceptable donor and minimum borrower contribution requirements for gifts also apply to gifts of equity.
Posted By: mtgbnkr

Re: Gift of Equity - 01/18/17 04:07 PM

How does the FDIC qualify this on a SLTV basis? Is it looked at as 100% financing or is the gift taken into consideration toward the LTV? I think this is what Randy is pointing out.
Posted By: trying_to_comply

Re: Gift of Equity - 10/11/17 07:12 PM

Anyone else surprised that the Final rule did not provide any additional information around Gift of Equity?
Posted By: rlcarey

Re: Gift of Equity - 10/11/17 07:51 PM

It is just a seller credit.
Posted By: BA13

Re: Gift of Equity - 02/28/20 05:56 PM

Hello,
Do you feel this is still a seller credit even though no cash is being transferred between the buyer & seller?
Posted By: rlcarey

Re: Gift of Equity - 02/28/20 06:07 PM

You only have two options - either lower the sales price or the seller gives them a seller's credit. That does not mean there is a transfer of cash - it just adjusts cash due from the borrower and cash due to the seller.
Posted By: RR Joker

Re: Gift of Equity - 03/04/20 07:12 PM

Agree with RAndy. The issue with lowering the sales price is that you would then likely still have a downpayment requirement that may otherwise be covered by said credit.