Gift of Equity vs Cash Gift

[Anonymous]

I hope that someone can shed some light on this!  I'm preparing to purchase a home from a relative.  The sale price will be approximately 30-40K less than the appraised value.  Relative is willing to gift me either the equity for downpayment or cash for a down payment.  My lender says that with the gift of equity, my mortgage would be for the full appraisal price.... It seems to me that it would be better to obtain a mortgage for the lower, seling price, and use a cash gift for downpayment.  Am I missing something?? Thanks in dvance!

[StartingOver10]

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@Anonymous wrote:

I hope that someone can shed some light on this!  I'm preparing to purchase a home from a relative.  The sale price will be approximately 30-40K less than the appraised value.  Relative is willing to gift me either the equity for downpayment or cash for a down payment.  My lender says that with the gift of equity, my mortgage would be for the full appraisal price.... It seems to me that it would be better to obtain a mortgage for the lower, seling price, and use a cash gift for downpayment.  Am I missing something?? Thanks in dvance!

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Normally the loan is based on the contract selling price or the appraised value whichever is lower.

I think it would be better if the sales contract price met the appraised value and then you can get the equity gifted to you. Otherwise you are excluding the equity (from what I can see).  

Hopefully one of the LO's will jump in to clarify.....

[Anonymous]

Thanks... I guess there's a reason I'm a history teacher and not a math teacher!  I don't understand... If the home appraises for say, 250K and the price is 215K.... does the seller actually receive the difference? Does it go to the mortgage co... thus creating the equity? I feel like an idiot when I talk to the lender and he explains it so matter-of-factly and I still don't get it! 

[Anonymous]

In a gift of equity situation, you can still do a purchase price and loan amount below the appraised value.