Can you buy a family member's house with no down payment?

Yes. If the family member has enough equity in the home, they can sell it to you below market value and the difference between the appraised value and the sale price can be used as your down payment through a process called a gift of equity. FHA, conventional, and VA loans all allow gifts of equity from eligible family members.

What is a gift of equity?

A gift of equity is when a family member sells you their home for less than its appraised market value. The difference between the appraised value and the agreed sale price is treated as equity and can be applied toward your down payment. The seller signs a gift letter confirming the equity does not need to be repaid.

Which loan programs allow a gift of equity?

FHA, conventional, and VA loans all allow gifts of equity from eligible family members including parents, children, siblings, and grandparents. FHA is the most flexible, allowing the entire down payment to come from a gift of equity with no minimum buyer contribution required on a primary residence.

Does a gift of equity affect gift taxes?

A gift of equity is a financial gift and amounts above the annual IRS exclusion of $18,000 per person require filing a gift tax return, Form 709. Most gift of equity transactions in California will exceed this threshold. Filing a gift tax return does not necessarily mean taxes are owed, but it is a required step. Consult a CPA before closing.

Does the buyer still need to qualify for a mortgage in a gift of equity transaction?

Yes. The gift of equity covers the down payment requirement but the buyer must still fully qualify for the mortgage based on their own income, credit score, and debt-to-income ratio. The gift of equity does not replace income or credit qualification.

Do lenders require an appraisal in a gift of equity transaction?

Yes. The lender orders an independent appraisal to establish the home's fair market value. The gift of equity is calculated based on the appraised value, not just the price the family agreed on. If the appraisal comes in lower than expected, the gift of equity amount adjusts accordingly.

The Homebuyer’s Corner

Can I Buy My Family Member's House Without a Down Payment?

Written by Armando Novelo, NMLS 237243, a mortgage loan officer in West Covina with over 20 years of experience helping Southern California buyers.

Family discussing options regarding selling the house to a family member

In many cases you can buy a family member's home without bringing a traditional down payment to the table. The way it works is through something called a gift of equity, and when it is structured correctly, it is one of the cleanest transactions I do.

This comes up a lot in the San Gabriel Valley. Multigenerational homeownership is embedded in this community. Parents want to pass a home to their kids. Grandparents want to keep a property in the family. Siblings work out arrangements to take over a home that would otherwise go on the open market. The families who know about a gift of equity have a real option. The ones who do not know about it either lose the opportunity or try to figure it out on their own and run into problems.

What a Gift of Equity Actually Is

A gift of equity happens when a family member sells you their home for less than its fair market value. The difference between the appraised value and the agreed-upon sale price is treated as equity in the transaction, and that equity can be used in place of a cash down payment.

Here is how the math works. Say a parent owns a home appraised at $750,000 and they agree to sell it to their child for $680,000. That $70,000 difference is the gift of equity. Depending on the loan program, that $70,000 can satisfy the down payment requirement entirely, meaning the buyer does not need to bring any cash to closing for the down payment.

The family member selling the home signs a gift letter confirming the equity is being transferred as a gift and does not need to be repaid. That letter is a required document for the loan file. It has to be written correctly and signed by the right people or the lender will not accept it.

Which Loan Programs Allow It

Gift of equity is accepted by FHA loans, conventional loans, and VA loans. The rules are slightly different for each.

FHA loans are the most flexible. The entire down payment can come from a gift of equity and there is no minimum contribution required from the buyer's own funds as long as the gift covers the full requirement.

Conventional loans through Fannie Mae and Freddie Mac also accept gifts of equity from family members. For a primary residence with a 20 percent down payment covered by the gift, no additional buyer contribution is needed. Requirements can vary based on occupancy type and loan-to-value so this is worth walking through with your lender specifically.

VA loans allow gifts of equity and since VA loans have no down payment requirement to begin with, the equity just needs to be there to support the transaction structure. Eligible veterans can use this strategy with significant flexibility.

What all three programs have in common is that the transaction still has to be between eligible family members. Lenders define family broadly and it typically includes parents, children, siblings, grandparents, and in some cases aunts, uncles, and cousins. Non-relatives generally do not qualify.

The Appraisal Is Not Optional

This is the part families most commonly underestimate and it is where informal arrangements fall apart.

The lender does not accept the family's agreed-upon price as the value of the home. They order an independent appraisal. The appraised value is what the lender uses to calculate the loan and verify the equity. If the appraisal comes in lower than expected, the gift of equity shrinks accordingly. If it comes in higher, that is generally fine.

The practical implication is that you cannot just agree on a number between family members and expect the lender to go along with it. The home has to actually be worth what the parties believe it is worth. In most cases in the SGV, values have appreciated enough that this is not a problem. But it is not something to assume.

I always tell families to get a realistic sense of value before they start the conversation about price. That way nobody is surprised when the appraisal comes back and the numbers are locked in.

What Families Get Wrong

Treating it like a casual handshake deal. That is the most common mistake.

Just because it is family does not mean the lender treats it informally. The gift letter has to be properly worded. The appraisal has to support the value. The buyer still has to fully qualify based on their own income, credit, and debt. The title and escrow process runs the same way it does on any other sale. Everything has to be documented.

I have seen families start down this path with a handshake agreement, no lender involved early, and then run into problems when the loan process reveals something that could have been handled upfront. The fix is almost always to get a lender on the phone before anyone commits to a number or a timeline.

The other mistake is assuming the buyer does not need to qualify. The gift of equity handles the down payment. It does not handle the income, credit, or debt-to-income requirements. The buyer still has to demonstrate they can carry the mortgage on their own. If they cannot qualify on paper, the gift of equity does not solve that problem.

Why This Strategy Makes Sense in the SGV

Home values in the San Gabriel Valley have appreciated significantly over the past decade. A lot of longtime homeowners in this market are sitting on substantial equity, sometimes $300,000 to $500,000 or more above what they originally paid. For families where the next generation wants to stay in the community but cannot afford current market prices with a traditional down payment, a gift of equity is often the most realistic path.

It keeps the property in the family. It avoids the open market. It gives the buyer a real start in a market where getting in is the hardest part. And done correctly, it is a completely legitimate, lender-approved strategy.

Done incorrectly, it creates delays, complications, and sometimes a deal that falls apart in escrow. The difference is almost always preparation and having the right people involved from the beginning.

Armando Novelo, NMLS 237243, is a mortgage loan officer at Super Mortgage Bros, powered by Golden Empire Mortgage. He has been helping Southern California buyers and homeowners since 2002. His office is located in West Covina, CA.

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Article Published: March 27, 2026

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Armando Novelo

NMLS 237243

Super Mortgage Bros

1900 W. Garvey Ave S. #100

West Covina, CA 91790

Phone: (626) 200-1838

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