When You Finally Buy the House You Never Left
They had already built a family village beside Grandma and Grandpa. Here’s how a 5% gift of equity, FHA seller credits, and a temporary rate buydown created a path to make the home officially theirs.
Editorial note before publication: Confirm that the clients have approved the use of their names, quotations, credit score, transaction figures, family history, and location details. If not, state that names and identifying details have been changed and remove any details that could identify the family.
Some clients come to me with a wish list. Jake and Elena came to me with a timeline—one that began six years earlier, in the middle of a pandemic, when a young family made a decision that would quietly shape the next chapter of their lives.
Their story is about much more than a mortgage. It is about the village they built around their children, the home they had already chosen in every way except on paper, and the financing strategy that finally gave them a path to make it their own.
For families considering a similar arrangement, our complete guide to buying a home with family explains the broader questions around financing, ownership, shared expenses, and exit planning.
The Move That Started It All
Jake and Elena were not strangers to homeownership when they called me. They had previously owned a beautiful hundred-year-old house near Royer Park in Roseville. It was full of character, but it was not exactly built with two energetic young boys in mind.
From there, they moved into a duplex close to Jake’s parents and near the boys’ school. The arrangement worked for a while.
Then the world shut down.
“The boys were just bouncing off the walls,” Jake told me, describing the early pandemic months in a shared-wall home with small children who suddenly had nowhere to go and no school to attend. The family needed space, and they needed it quickly.
So they did something many families quietly did during those uncertain months: they rearranged their lives around one another. Jake and Elena sold their home to his parents and moved onto the family’s property in Penryn. Jake’s parents began building a custom home on an adjoining four-acre parcel, a project that started in late 2020 and continued through the pandemic-era construction boom.
Eventually, the two households became neighbors—not neighbors in the ordinary sense, but family members who could see one another’s porch lights, share a driveway, help with the land, and be present for the ordinary moments that rarely happen during scheduled visits.
Grandparents were now a few hundred feet away instead of a few hours away.
When I asked Jake how long they had wanted to make the arrangement official by buying the home they were living in, he did not need time to think.
“When we moved in six years ago.”
Six years is not an impulse decision. It is a family discovering what works and spending half a decade waiting for the right opportunity to make it permanent.
Families are increasingly finding creative ways to live near one another, share resources, and build long-term stability. I have written more about why California families are choosing multigenerational living and created a separate step-by-step playbook for buying a home with parents for households beginning that conversation.
What “Next Door” Really Means
It is easy to talk about multigenerational living in the abstract: shared expenses, childcare, caregiving, and the ability to combine resources. But listening to Jake and Elena describe their daily life made it clear that this was not a financial strategy dressed up as a lifestyle.
It was simply their life.
Jake’s mother helps pick up the boys from school. She walks with them. On the day of our loan consultation, his parents were handling another family errand—just an ordinary Tuesday for grandparents who live close enough to participate in daily life rather than only special occasions.
There is a phrase I return to often in this work: it takes a village to raise a family. When that village is close enough for school pickup, an afternoon visit, or help during a difficult week, something changes. The relationships deepen. Children grow up knowing their grandparents not as occasional visitors, but as fixtures in their lives.
Elena’s side of the family adds another dimension to that story. She grew up near the Black Sea in Romania, where her parents still live. Just months before our consultation, twenty-six members of the extended family—siblings, spouses, children, and in-laws—gathered there to celebrate her parents’ fiftieth wedding anniversary.
A family that values closeness across an ocean also understands the gift of creating it at home.
For a deeper look at the practical side of designing a home and mortgage around several generations, visit our guide to multigenerational home buying in California.
When I asked whether buying this property felt like the culmination of what they had been working toward, Jake did not hesitate.
“Holy, yeah. This was the goal.”
The Fear That Almost Stopped Them
Here is the part of the story that matters for anyone who assumes a past credit problem has already decided their future: Jake and Elena almost did not call.
They wanted to buy the house, but Jake had credit history he was not proud of. In his mind, that meant the purchase was probably out of reach before the conversation even started.
Elena put it plainly: “We actually did not even think that this would be possible.”
They were also worried that they would have to risk six or seven thousand dollars out of pocket just to try, with no assurance that the transaction could work.
That fear kept them on the sidelines longer than necessary.
When we reviewed the full loan profile, Jake’s mortgage credit score was 644. Jake and Elena heard that number as a red flag. I saw a potential path that deserved to be fully evaluated.
The distinction matters. A credit score is an important part of mortgage underwriting, but it is not the entire decision. Income, monthly debts, assets, reserves, recent payment history, property eligibility, and the complete underwriting result all matter.
Under the current HUD FHA Single Family Housing Policy Handbook, eligible borrowers with a decision credit score of 580 or higher may qualify for maximum FHA financing. Scores from 500 through 579 are generally limited to 90% loan-to-value, and individual lenders may apply higher minimums or additional requirements. No score by itself guarantees approval.
In this case, 644 gave us a workable starting point. We did not need to tell the family to spend a year chasing a perfect score before we could even explore the transaction.
There is an enormous difference between “my credit is not perfect” and “I cannot qualify.” Many people assume the second when only the first is true. Our mortgage credit-score guide explains how loan programs evaluate credit, and our Credit Score Booster Tips can help buyers prepare before applying.
Why FHA Fit This Family Transaction
Once we understood the complete credit profile and the family’s goals, FHA financing offered advantages that were especially valuable in this transaction.
A conventional loan was not impossible merely because the score was 644. But conventional pricing and private mortgage insurance can be more sensitive to credit, and the seller-credit limit for a high-loan-to-value conventional transaction can be lower.
Fannie Mae’s conventional seller-contribution limits vary by occupancy and loan-to-value. For a principal residence above 90% LTV, the standard maximum financing concession is generally 3%. FHA permits interested parties to contribute up to 6% of the sales price toward allowable borrower costs, subject to actual costs and all program requirements.
That additional room mattered because this family was not using just one type of assistance. The transaction needed to coordinate:
- A gift of equity to help satisfy the buyers’ required investment.
- A seller credit for allowable closing costs and prepaid expenses.
- A seller-funded temporary interest-rate buydown to reduce the buyers’ initial payments.
These are three separate parts of the structure. They do three different jobs.
For a broader comparison, see FHA vs. conventional loans and our complete guide to conventional home loans. Buyers can also review additional options on our Mortgage Products page.
What a Gift of Equity Actually Is
A gift of equity is one of the most useful tools in a sale between family members—and one of the most frequently misunderstood.
It does not mean Jake’s parents had to withdraw cash from a bank account and hand it to Jake and Elena. The value already existed inside the property.
In a gift-of-equity transaction, a family member sells a home to another family member and gives the buyer a documented portion of the seller’s ownership value. That amount appears as a credit in the transaction and reduces the proceeds the seller receives.
In this case:
- The agreed purchase price was $675,000.
- Jake’s parents provided a 5% gift of equity.
- Five percent of $675,000 is $33,750.
That $33,750 was not a separate loan, and it was not money Jake and Elena would repay later. It represented equity the parents chose to transfer to them as part of the sale. Subject to the appraisal, underwriting, documentation, and FHA requirements, it could be applied toward the buyers’ required investment.
Think of it this way: if the contract says the home is being sold for $675,000, but the parents agree to receive $33,750 less because they are gifting that value to their children, the family has converted part of the parents’ existing home equity into the buyers’ stake in the property.
For FHA financing, gifts of equity in a family sale must be properly documented. The lender will generally require a gift letter identifying the donor, the relationship, the amount, and the fact that no repayment is expected. The home’s appraised value and the program’s identity-of-interest requirements also matter.
Mortgage eligibility and tax treatment are different questions. The IRS generally treats a transfer of property for less than full consideration as a gift, and a gift-tax return may be required even when no gift tax is immediately owed. Families should review the IRS gift-tax FAQs, consult their own tax professional, and read our consumer guide to gift tax and family assistance.
What the Seller Credit Does—and Does Not Do
The seller credit is separate from the gift of equity.
The gift of equity helps create the buyers’ investment in the home. The seller credit helps pay allowable costs associated with obtaining the loan and completing the purchase.
Depending on the final loan and actual charges, seller credits may be used for items such as:
- Lender and settlement charges
- Title and escrow costs
- Appraisal and other allowable loan costs
- Prepaid interest
- The initial homeowners-insurance premium
- Property-tax and insurance escrow deposits
- Discount points or an eligible interest-rate buydown
A seller credit is not a check handed to the buyer after closing. It must be disclosed in the contract and closing documents, it cannot exceed the applicable program limit, and it generally cannot exceed the buyers’ actual eligible costs. If there are not enough allowable costs to use the full credit, the buyers do not simply receive the unused amount as cash.
The Consumer Financial Protection Bureau’s Loan Estimate explainer shows how seller credits reduce estimated cash to close. Its Closing Disclosure explainer shows where buyers can confirm the final seller-paid items and credit.
That distinction matters in this story. Jake’s parents were not simply “giving them 6%.” We first identified the actual allowable costs, then structured the seller contribution within FHA and lender guidelines so those costs could be paid at closing.
Our article about using seller credits in today’s market gives buyers another practical example of how credits can protect savings.
How the Temporary Interest-Rate Buydown Works
Part of the seller credit—approximately $15,000 in the proposed structure—was designated to fund a temporary interest-rate buydown.
This does not permanently change the interest rate written into the mortgage note. Instead, money is placed into a buydown account and used during the early years of the loan to cover part of the scheduled principal-and-interest payment.
For example, under a common 2-1 temporary buydown structure:
- During year one, the payment is calculated as if the rate were 2 percentage points below the note rate.
- During year two, the payment is calculated as if the rate were 1 percentage point below the note rate.
- Beginning in year three, the borrower makes the full payment based on the note rate.
The note rate itself does not step up. The temporary subsidy steps down.
Borrowers should therefore be comfortable with—and generally must qualify using—the full note-rate payment. The buydown is intended to create breathing room during the transition into homeownership, not to make an otherwise unaffordable permanent payment disappear.
The Consumer Financial Protection Bureau explains that temporary buydowns commonly last one to three years and that the payment increases as the subsidy expires.
If the loan is paid off or refinanced before all buydown funds have been used, the remaining funds are handled according to the written buydown agreement and applicable servicing requirements. They may be applied toward the outstanding mortgage balance, but borrowers should review the actual agreement rather than assume they will receive unused funds as cash.
Reverse Engineering the Family’s Goal
This is my favorite part of a transaction like this because it begins at the end.
Most home purchases start with a listing price and work forward. Jake’s parents had a different priority: they wanted the transaction designed around approximately $600,000 in net proceeds after the agreed family assistance and applicable transaction costs.
So we worked backward.
The maximum seller contribution is not automatically the final credit. The final amount must be supported by actual eligible costs and shown on the closing documents. At the maximum figures above, the price minus the gift of equity and seller contribution equals $600,750 before any remaining seller-side costs and prorations. The final Closing Disclosure is what reconciles every charge and determines the sellers’ actual proceeds.
That transparent math is important. A good family transaction should not depend on fuzzy numbers or verbal promises. Every gift, credit, fee, and adjustment should be visible in the contract, lender file, and final settlement documents.
The structure was designed to move Jake and Elena toward ownership with very little cash due at closing while preserving the parents’ financial goal. Final cash to close, seller proceeds, loan approval, and program eligibility remain subject to the completed underwriting, appraisal, contract, and closing figures.
This Is Where the Village and the Financing Meet
The financing is interesting, but it is not the reason this story matters.
The gift of equity represents more than $33,750 on a settlement statement. It is one generation transferring part of what it built to the next.
The seller credit represents more than paid fees. It gives a young family the chance to reach closing without emptying the reserves they may need after becoming homeowners.
The temporary buydown represents more than a lower initial payment. It creates a planned transition period while the family settles into the financial responsibilities of ownership.
And the home itself represents more than a parcel of land. It is the center of a family village that already exists: children walking with their grandmother, relatives close enough to help on an ordinary weekday, and grandparents present for the moments that would otherwise be missed.
That is what good mortgage planning should do. It should not force the family into a product. It should organize the available tools around the life the family is trying to build.
Start With Our Buying a Home With Family Planner
If your family is considering buying together, purchasing a parent’s home, using a gift of equity, or creating a multigenerational property, start with our free planning resources before you choose a loan.
First, visit the Buying a Home With Family Resource Center and Family Home Buying Planner.
It will help your family organize:
- Who will live in the home now and later
- Who may need to borrow and who may contribute a gift
- Income, debts, savings, existing properties, and available equity
- Ownership and title questions to discuss with an attorney
- How housing expenses, repairs, and reserves may be shared
- What should happen if someone moves, stops paying, becomes disabled, divorces, or dies
Then use the complimentary Modern Family Compound Planner to turn those answers into a personalized Family Home Buying Blueprint. Bring that blueprint to a Family Home Buying Strategy Consultation so we can review the actual credit, income, assets, debts, property, and loan options.
These planning tools are educational and do not approve a loan or replace mortgage, legal, tax, estate-planning, or insurance advice. Additional buyer education is available through our Homebuyer Resource Center and First-Time Home Buyer Hub.
What Comes Next for Jake and Elena
If the transaction closes as structured, Jake and Elena will finally own the home their children already think of as the place near Grandma and Grandpa.
They will keep walking to school with a grandmother a few hundred feet away. They will keep building a life around the family members who have already been part of their daily rhythm for six years. A pandemic-era decision will become a permanent piece of their family’s future.
After closing, we can periodically review the mortgage. If their credit, equity, market rates, projected savings, and closing costs make refinancing beneficial in the future, we can compare the available options. Refinancing is never automatic, and a lower payment or better terms cannot be guaranteed. Our homeowner’s refinancing guide explains the factors that should be considered.
If This Story Sounds Familiar
Jake and Elena are not alone. This was the third time I had worked with a family navigating a similar situation: a pandemic-era house swap or move near parents, followed years later by an effort to make the arrangement official once the timing and financing aligned.
If you are living in a family-owned home, considering buying from a parent, or wondering whether imperfect credit makes a family sale impossible, ask the question before assuming the answer.
Once we understand your family, your resources, and your why, we can determine whether there is a responsible path forward.
❓FAQs About Gifts of Equity and Family Home Purchases
A gift of equity occurs when someone sells a property to an eligible family member and gives the buyer a portion of the seller’s existing ownership value. Instead of transferring cash from a bank account, the seller accepts less in proceeds and the documented equity credit appears in the purchase transaction. It may be used toward the buyer’s required investment or other eligible purposes, depending on the loan program.
A cash gift comes from the donor’s bank or other verified acceptable source and is transferred into the transaction. A gift of equity comes from value already held in the property being sold. Both require documentation, a permitted donor relationship, and a statement that repayment is not expected. A gift that must be repaid is not a gift and needs to be disclosed as debt.
It may cover some or all of the required investment when the donor, borrower, property, occupancy, appraisal, and loan program meet the applicable rules. The amount cannot be chosen in isolation; the lender must calculate it using the approved value and transaction structure. Family sales can also trigger identity-of-interest requirements, so the structure should be reviewed before the contract is finalized.
An FHA seller credit may generally pay actual allowable borrower costs such as origination and settlement charges, title and escrow fees, prepaid taxes and insurance, escrow deposits, and eligible rate-buydown costs. Interested-party contributions are generally limited to 6% of the sales price and cannot exceed actual permitted costs. Unused credit is not normally handed to the buyer as cash.
Potentially, yes. The gift of equity and the seller credit must be documented separately because they serve different purposes. The gift transfers ownership value for the buyer’s investment; the seller credit pays eligible transaction costs. The appraisal, purchase contract, gift letter, underwriting approval, program limits, and final Closing Disclosure must all support the structure.
No. A temporary buydown uses money placed in a subsidy account to reduce the borrower’s principal-and-interest payment for a defined period, commonly one to three years. The note rate remains in effect, and the borrower should plan for the full payment after the subsidy ends. If the loan is paid off early, remaining funds are handled according to the written agreement and servicing rules.
No credit score is an automatic approval. A 644 score may fall within the range considered for FHA financing, but the lender must still evaluate income, debts, employment, assets, payment history, property eligibility, appraisal, and the full underwriting result. Lender requirements can be stricter than FHA’s published minimums.
The family should decide who will borrow, who will hold title, what each person is contributing, how monthly expenses and repairs will be shared, and what happens if someone moves, cannot pay, divorces, becomes disabled, or dies. A written co-ownership or family agreement should be prepared or reviewed by a qualified attorney, and the family should obtain independent tax, estate-planning, and insurance advice.
Continue Learning
The article above includes ten supporting articles from the Amy DeBusk Home Loans library:
- Buying a Home With Family: Mortgage Options, Ownership and Exit Strategies
- Why More California Families Are Choosing Multigenerational Living
- Buying a Home With Your Parents in California
- Multigenerational Home Buying in California
- What Credit Score Do You Need to Buy a Home?
- FHA vs. Conventional Loans
- The Ultimate Guide to Conventional Home Loans
- Gift Tax in 2026: What You Really Need to Know
- Using Seller Credits in Today’s Market
- The Homeowner’s Guide to Refinancing
This article is for general educational purposes only. It is not a commitment to lend, an approval, or legal, tax, accounting, estate-planning, insurance, or investment advice. Loan programs, credit requirements, contribution limits, interest rates, costs, and underwriting guidelines may change and may vary by lender, investor, occupancy, property, and borrower profile. All loans are subject to credit approval, income and asset verification, appraisal, property eligibility, and underwriting. Past client experiences and proposed transaction structures do not guarantee future results. Consult qualified legal and tax professionals regarding gifts, title, co-ownership, basis, reporting, and estate-planning consequences.
Amy DeBusk, NMLS #281056. loanDepot.com, LLC, NMLS #174457. Equal Housing Opportunity.
