If you’re anything like me, you’ve probably thought a lot about how to support your kids as they start building their lives. Helping their children buy a home feels exciting and impossible for many parents, especially with today’s sky-high prices. But here’s the secret most people don’t realize: you don’t always need to gift them a pile of cash. If you’re a homeowner with built-up equity, you might already be holding the key to helping them unlock their future. It’s called a gift of equity, and I’ve seen clients use it to help their children say, “We got the house.”
Let’s simplify this: a gift of equity is when you sell your home (or part of it) to a family member for less than market value and use the difference as their down payment. For example, if your house appraises for $400,000 and you sell it to your child for $300,000, that $100,000 difference is considered the gift of equity.
This is so powerful because your child can secure financing without making a large cash down payment. And because it's an official transaction recognized by lenders, everything is above board and compliant.
As a Rhode Island Realtor and a mom, I’ve seen firsthand how meaningful this strategy can be, financially and emotionally. You’re not just helping them buy a house; you’re giving them stability, security, and a legacy they’ll never forget.
Home equity is one of America's most overlooked ways to build wealth.
Every time you make a mortgage payment—or your home increases in value—you’re growing your equity. According to CoreLogic (now Cotality), the average U.S. homeowner with a mortgage has over $311,000 in equity. That’s a staggering amount of untapped financial power just sitting there.
Here in Rhode Island, we’ve seen years of strong appreciation. If you’ve owned your home for a few years, odds are you’re sitting on significant equity, especially if you bought before the pandemic housing surge.
Equity doesn’t just represent money. It represents freedom, flexibility, and the ability to do something that truly matters—like helping your child become a homeowner when it might otherwise feel out of reach.
Homeownership has long been a key path to financial stability and generational wealth.
When parents help their children buy a home—whether through a gift of equity or otherwise—they’re setting them up to build their own equity, lock in housing costs, and invest in their future.
In many cases, I’ve seen families treat this as a financial decision and a legacy move. It’s about passing something meaningful on while you’re still here to see the impact. It's an incredible way to make a lasting difference in your child's life without liquidating savings or retirement accounts.
Let’s face it: buying a home has never felt more out of reach for younger buyers. Between rising home prices, higher interest rates, and record levels of student debt, even financially responsible adults struggle to save enough for a down payment.
According to a report from Bank of America, nearly half (49%) of buyers between 18 and 26 received financial help from their parents for their down payment. That stat alone says a lot about the financial pressure facing today’s first-time buyers.
That challenge is even greater in Rhode Island, where the median home price has risen dramatically over the past few years. I hear from young buyers all the time who have great jobs and strong credit, but still can’t compete with today’s down payment requirements.
Because of these challenges, the gift of equity has become an increasingly popular option. Families can work together toward homeownership without tapping cash reserves or savings.
While we don’t have exact figures on how many of these gifts come directly from equity, we know most parents giving financial help are homeowners. Their ability to help is often rooted in the wealth they've built through real estate.
Compare the Market found that 45% of Americans who received financial help from parents or grandparents to buy a home said they wouldn’t have been able to do it otherwise. That’s a huge testament to how impactful these gifts can be—and why more families are considering them.
Here’s how a gift of equity works.
A home is appraised to determine its market value, and then the parent or family member sells it to their child for a lower price. The difference between the market value and the sale price becomes the down payment “gift.”
It’s important to note that this isn’t a handshake deal. Lenders will require documentation, including a signed gift letter confirming that the money is truly a gift and not a loan.
While no cash changes hands between family members, the buyer (your child) still applies for a mortgage based on the sale price. This makes the entire transaction legitimate and financeable while still reducing or eliminating the need for a traditional down payment.
Several specific conditions must be met to qualify for this type of transaction:
A professional appraisal is required to determine the home's fair market value.
A gift letter must be provided to the lender. This letter formally states that the equity is being gifted and not expected to be repaid.
Tax considerations need to be evaluated. The IRS allows gifts of up to $18,000 per person annually (as of 2024) without triggering gift tax. You may need to file a gift tax return if the gift exceeds that amount.
It's also crucial that both the buyer and seller have independent representation—real estate agents, attorneys, or both—to ensure that the transaction is in everyone’s best interest.
Before moving forward, I recommend that families consult a trusted financial advisor and lender. These professionals can help you:
Evaluate the impact of the gift on your overall financial picture
Understand the mortgage process from the buyer’s side
Navigate tax implications
Ensure the paperwork is complete and correct
Your lender will also explain eligibility requirements and help ensure the buyer is approved for the loan under the adjusted purchase terms.
One of the things I love most about the gift of equity is that it's not just about money. It's about the emotions and opportunities it offers. I've seen parents light up as they realize they can help their child start the next chapter of their life with confidence and stability.
Instead of handing over a check, you're giving them a foundation.
A real place to call home. That emotional and psychological benefit goes beyond any spreadsheet or balance sheet. Many clients have told me how meaningful it was to be the reason their child got to say, "We bought a house."
While this strategy isn’t for everyone, it’s ideal in certain life situations:
Empty nesters looking to downsize: You can sell the family home to your child and move to something more manageable, without going through the open market.
Families wanting to keep homes in the family: This keeps real estate assets within the bloodline.
Parents with significant equity but not a lot of cash: If your wealth is tied up in your home, this is a way to leverage it without selling or refinancing.
The key is understanding your goals, your child’s financial situation, and the long-term implications. That’s why working with a real estate professional and financial team is critical.
I often hear concerns like: “Won’t I lose my retirement security?” or “Isn’t this risky?”
If done properly, the gift of equity doesn’t have to compromise your financial future. That’s why planning is everything. You don’t have to give away all your equity. Many parents structure partial gifts that still leave plenty of cushion for their next chapter.
Another myth is that these deals are less serious or informal.
Lenders and attorneys handle gift of equity transactions with the same professionalism and documentation as any other real estate sale.
While the gift of equity is powerful, it’s not the only way to support your children on their homeownership journey. Some families choose to:
Co-sign the mortgage: This can help improve the buyer’s credit profile and debt-to-income ratio.
Offer a cash gift for the down payment: A traditional route, though it requires liquid assets.
Finance the sale privately: Also known as seller financing, this allows you to act as the lender.
Assist with closing costs or renovations: Smaller gestures can still greatly impact affordability.
The best choice depends on your finances, goals, and family dynamics. There’s no one-size-fits-all solution, but there are many ways to help.
One of my recent clients, a couple in South County, had owned their home for over 20 years. With the market value soaring, they decided to downsize and use their home’s equity to sell their house to their daughter and her husband for a reduced price. The difference became their down payment.
The daughter and her husband were able to secure a mortgage, avoid PMI (private mortgage insurance), and move into a house they never thought they could afford. It was one of the most touching closings I’ve ever attended. Everyone left with tears in their eyes—and keys in hand.
As a RI Realtor, I talk with families all the time about how to turn their equity into something meaningful.
When someone asks me whether a gift of equity is a good idea, here’s what I say:
Let’s talk about your long-term goals.
Let’s connect you with the right lender and financial advisor.
And most importantly, let’s do what feels right for your family.
Real estate isn’t just about numbers. It’s about people, relationships, and life-changing milestones. If you’re curious about the gift of equity, I’d love to help you explore whether it’s the right move.
If you’ve built up equity in your home, you may be sitting on one of the most powerful tools to help your children take that first big step into homeownership. A gift of equity isn’t just financial—it’s generational. It’s emotional. And when done thoughtfully, it can change a life.
Thinking about how this could work for your family? Let’s talk.
FAQs
1. What is the difference between a gift of equity and a cash gift?
A gift of equity is based on the value difference in a home sale to a relative. A cash gift is a liquid financial transfer. Both can be used for down payments, but have different implications.
2. Are there tax consequences for giving a gift of equity?
Possibly. Gifts over the IRS threshold ($18,000 per person in 2024) may require a gift tax return. Consult a tax advisor.
3. Can this be used for investment properties or only primary residences?
Most lenders require gift of equity transactions between family members and primary residences.
4. Do both parties need a lawyer for a gift of equity transaction?
It’s highly recommended. Proper legal and real estate guidance protects everyone’s interests.
5. How much equity do I need to make this work?
It depends on the home's value and how much discount you want to offer. Generally, the more equity you have, the more flexible your options are.