A gift of equity is a credit from the seller's equity to the buyer: Fannie Mae and Freddie Mac allow it on principal residence and second home purchases when the seller is an acceptable donor (Fannie Mae) or a Related Person or that person's business, trust or estate (Freddie Mac), and FHA allows it only from a Family Member selling to another Family Member. Under Fannie Mae and Freddie Mac it cannot be used for reserves and, from an eligible donor, is not subject to interested party contribution limits; Fannie Mae also applies its personal gift minimum contribution rules, and Freddie Mac requires a 5% down payment from personal funds on a second home above 80% LTV. FHA requires a gift letter signed and dated by donor and borrower, and limits identity-of-interest purchases to 85 percent LTV unless the borrower buys a family member's principal residence or a family-owned home the borrower has rented for at least six months.
Fannie Mae (conventional)
- A gift of equity is a gift from the seller to the buyer of a portion of the seller's equity, transferred as a credit in the transaction. Fannie Mae B3-4.3-05
- It is permitted for principal residence and second home purchases and may fund all or part of the down payment and closing costs, including prepaids, but not reserves; the personal gift rules on acceptable donors and minimum borrower contribution also apply. Fannie Mae B3-4.3-05
- When the gift of equity comes from an acceptable donor, the donor is not an interested party and the gift is not subject to the interested party contribution limits. Fannie Mae B3-4.3-05
- The loan file must contain a signed gift letter and the settlement statement listing the gift of equity. Fannie Mae B3-4.3-05
Freddie Mac (conventional)
- A gift of equity is a credit from the property seller's equity; it must not be used for reserves or as cash back to the borrower. Freddie Mac 5501.4
- It is eligible for a primary residence or second home when it need not be repaid and the donor is a Related Person, a business owned by or trust established by a Related Person, or a Related Person's estate; not for investment properties. Freddie Mac 5501.4
- For a second home above 80% LTV/TLTV/HTLTV, the borrower must make a down payment of at least 5% from personal funds. Freddie Mac 5501.4
- The gift letter must state the actual or maximum amount and that the gift need not be repaid, and the gift must appear on the Settlement/Closing Disclosure Statement. Freddie Mac 5501.4
- A gift of equity from a Related Person who is also the seller is excluded from the interested party contribution requirements if the donor is not the builder or affiliated with another interested party. Freddie Mac 5501.6
FHA
- Only Family Members may provide equity credit as a gift on property being sold to other Family Members. FHA 4000.1 II.A.4.d.iii(F)
- The gift letter must be signed and dated by the donor and borrower and give the donor's name, address, telephone number and relationship, the dollar amount, and a statement that no repayment is required. FHA 4000.1 II.A.4.d.iii(F)
- Sales between Family Members are identity-of-interest transactions, limited to 85 percent LTV on principal residences, unless the borrower buys a Family Member's principal residence or a Family Member's property rented by the borrower for at least six months. FHA 4000.1 II.A.2.b.ii(A)
Sources
- Fannie Mae Selling Guide, September 2, 2026 version: B3-4.3-05, Gifts of Equity (p. 437, 438)
- Freddie Mac Single-Family Seller/Servicer Guide, September 16, 2026 version: 5501.4(a)(4), Gift of equity (p. 5501-33); 5501.6(a)(iii), Exceptions to interested party contribution requirements (p. 5501-41)
- FHA Single Family Housing Policy Handbook 4000.1, August 12, 2026 version: II.A.4.d.iii(F)(4), Standards for Gifts of Equity (TOTAL) (p. 260); II.A.2.b.ii(A), LTV Limitations Based on Identities of Interest (p. 180)
Agency guides set the baseline; individual lenders can add stricter overlays. Sources are the guideline versions in Zeitro Strata as of October 29, 2026.