A Gift of Equity When You Sell or Buy a Richmond-Area Home From Family: How It Works and What the Lender Needs

Published October 16, 2026

Selling a home to a parent, child or sibling often comes with a quiet question: can the seller simply give the buyer part of the home’s value? The answer is yes, and lenders have a name and a paper trail for it. It is called a gift of equity, and it has to be set up the way the lender’s program says, not just agreed over dinner. This guide sticks to what the Fannie Mae, HUD and VA pages say, plus what the IRS and the Code of Virginia say about the tax side. Where we could not confirm something, we say so.

What a Gift of Equity Actually Is

Fannie Mae’s Selling Guide defines it as a credit the seller gives the buyer that represents a portion of the seller’s equity in the property. It shows up in the transaction as a credit, not as cash changing hands.

A simple illustration, with round numbers that are not a market figure: a family agrees to a contract price of $300,000, and the seller gifts $30,000 of equity. The settlement statement lists the $30,000 gift of equity, and the buyer’s own money or loan covers the rest. The seller does not hand over a check, and the buyer does not have to find that $30,000 in a bank account.

It works in the City of Richmond exactly as it does in Henrico, Chesterfield or Hanover: the program rules come from the lender and the loan type, not from the county. What changes locally is the paperwork at the clerk’s office, which we cover below.

What the Lender Will Need From You

Fannie Mae’s section says the loan file needs two things: a signed gift letter and the settlement statement showing the gift of equity. The Selling Guide points to its personal-gifts section for what the letter must say rather than repeating it in the gift-of-equity section.

For FHA loans, HUD’s own answer on gifts of equity is more specific. HUD says the mortgagee must obtain a gift letter signed and dated by both the donor and the borrower that includes the donor’s name, address and telephone number, the donor’s relationship to the borrower, the dollar amount, and a statement that no repayment is required. HUD’s page also points lenders to the Handbook 4000.1 sections that cover gift letters and documentation.

In practice, that means the seller and buyer should decide the gift amount early, because the same number has to appear in the gift letter, the contract and the settlement statement. If those three documents disagree, expect questions. Ask your lender for its gift letter template before you draft anything yourself; our preferred lenders may be able to share theirs.

How Fannie Mae, FHA and VA Treat It Differently

Fannie Mae. A gift of equity can cover all or part of the down payment and closing costs, including prepaid items, on a principal residence or second home. It cannot be used toward financial reserves. Because the seller is the donor, Fannie Mae says the gift is not treated as an interested party contribution, so it is not capped by those limits. The minimum borrower contribution rules that apply to gifts also apply to gifts of equity, and the personal-gifts section sets those out: for a one-unit principal residence above 80 percent loan-to-value, all funds can come from a gift, while a two- to four-unit property above 80 percent can require 5 percent from the borrower’s own funds.

FHA. HUD says only family members may give equity credit as a gift on a property being sold to another family member. Its list includes a child, parent or grandparent, a spouse or domestic partner, a brother or sister, an uncle or aunt, and in-laws, among others. A gift toward the borrower’s minimum required investment must also meet the additional requirements in HUD’s Handbook 4000.1. A friend as the seller does not fit HUD’s wording.

VA. We found less here. A VA lender-conference presentation on credit underwriting lists gifts of equity under other issues and says two things: a gift of equity is not considered a down payment for the purpose of reducing the VA funding fee, and the buyer and seller may opt to reduce the purchase price instead. We did not locate a VA page stating donor, letter or appraisal rules, so confirm those with a VA lender.

The Appraisal Question We Could Not Close

None of the program pages above spells out an appraisal rule for gifts of equity. Fannie Mae’s section says nothing about appraisals, and neither HUD’s answer nor the VA slides we read does either. We will not guess. Ask the lender, before you sign a contract, what appraisal they will order and when it will be ordered, because the gift amount and the contract price both have to hold together with whatever value the lender uses. Our buyer process page explains where the appraisal falls in a normal purchase timeline.

The Tax Questions to Take to a Professional

Two different taxes can touch a family sale. We are summarizing what the government pages say, not telling you what applies to you.

Federal gift tax. The IRS’s gift tax FAQ says any transfer where full consideration is not received in return is a gift, and that the donor is generally responsible for paying any gift tax. It lists a $19,000 annual exclusion per recipient for both 2025 and 2026, and says that the lifetime basic exclusion amount is $15,000,000 for gifts made in 2026. The return is Form 709. Whether a particular gift of equity has to be reported depends on the amount and your facts, so ask a CPA or tax attorney before closing, not after.

Virginia grantor tax. The Code of Virginia section 58.1-802 puts an additional tax on the grantor, meaning the seller, and bases it on whichever is greater: the consideration or the value of the interest conveyed. So a discounted family price does not automatically mean a smaller tax base. The statute also lets the grantor and grantee agree that the grantee pays all or part of the tax, and requires the consideration to be stated on the first page of the document. For the mechanics and a worked example, see our guides to grantor tax and recordation fees at a Richmond closing and a worked example of the grantor tax on a home sale. Which dollar figure a clerk’s office will accept as value is a question for your attorney.

Related Family Transfers You May Run Into

A family sale rarely stands alone. If the buyer is still choosing among homes, the Richmond-area property search shows what is currently listed. If a relative is also helping with cash, read how gift funds for a down payment are documented, since a gift of equity and gift funds are separate things with separate letters. If the house is coming from a parent’s estate, see buying a home from an estate or heirs. If the plan involves changing who is on the deed instead of selling, read adding or removing a name on a Richmond-area deed. And if a parent will not be at the closing table, power of attorney at a Virginia real estate closing explains the signing authority issues.

Frequently Asked Questions