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Congratulations; You’ve found a house you love and want to buy. You may even be in the final stages of closing on this dream home. But sometimes, you may need to access what’s known as an escrow holdback: a way of setting aside funds at the closing for repairs that are most definitely needed as you take ownership.

For example, what happens if a blizzard hits the week before your scheduled closing, revealing a leaky roof that needs major (pricey) repairs?

This wasn’t something that showed up in the initial inspection report. Or, maybe it did show up in the inspection report, but the issue is suddenly much more pressing in light of said snowstorm. Either way, these repairs can’t be made at this particular time because it’s winter and, well, it’s snowing outside.

What’s a buyer to do? In this scenario, an escrow holdback could be a path to funding the necessary repairs without blowing your closing date. Here, you’ll learn more about escrow holdbacks, including:

•   What is an escrow holdback?

•   How does an escrow holdback work?

•   What qualifies for an escrow holdback?

•   What if your situation doesn’t qualify for a holdback?

Escrow Holdbacks Defined

Before defining escrow holdbacks, here’s what escrow is: Typically, it’s money held by a third party as assets (such as real estate) are being transferred.

An escrow holdback agreement, however, occurs when money is set aside at the closing of a home to complete repairs. Generally, this is done at the seller’s expense, though not always.

Money is held in an escrow account until the repairs are completed. The funds can then be released. Another name for an escrow holdback that you may hear used is a repair escrow.

This may sound like a pretty good arrangement, but an escrow holdback isn’t a possibility for every borrower and in every scenario. Consider the following:

•   The lender’s underwriter will review the appraisal and any accompanying inspection reports to confirm that the sales price is met and that the property does not show evidence of any deferred maintenance items that can have an effect on things like safety, soundness, or structural integrity.

•   These are often referred to as health and safety issues. Health and safety issues can affect whether the home is eligible for financing.

•   Most lenders will not close a loan on a home that has been called out for things like missing railing, stairs, fencing, and much more.

It’s not hard to imagine a situation where a homebuyer needs the seller to repair something that cannot be completed until after the contract’s closing date, like in the snowstorm example above. Depending upon the repair, a lender may allow for the seller to place funds in escrow for what’s known as defect cure within a specified period of time for a specified amount.

These repairs could be expected or unexpected as the parties move through the home-buying process. Generally, the appraiser calls out the more obvious issues that hurt a home appraisal and may recommend further inspection by an expert for something noted in their report. If an appraiser requests an inspection, the lender’s underwriter may review the report and require some repairs.

Another example of a situation in which an escrow holdback could be a valuable tool: when a seller needs the proceeds from the sale of the home in order to comply with the repair request.

These are examples of how and when an escrow holdback could be warranted and beneficial.

Recommended: 31 Ways to Save for a Home

How Does the Escrow Holdback Process Work?

If you’re curious about how the escrow holdback process works, consider these points that spell out the process in more detail:

•   Normally, the first step is the buyer’s and seller’s agents negotiating any required repairs through an addendum to the purchase contract. This is drawn up by the real estate agents and signed by all parties.

•   The document will likely outline the repairs that the buyer (or lender) would like the seller to make, the timeframe for those repairs, and details about how and when the payments to the contractors are to be made.

•   This contract addendum is then sent to the escrow company (or the attorney) and to the lender, who will review the document. The underwriter of the loan will have the last say as to whether the escrow holdback is approved.

•   If it is approved, then the closing may proceed as initially planned. However, not all holdback requests will be approved.

   The lender may have conditions around the approval of an escrow holdback. These can include but are not limited to such requirements as improvements having to be completed within 180 days of the mortgage closing date.

•   The lender will likely establish an escrow completion account with the title company from the purchase proceeds. This is typically equal to 120% of the estimated cost for completing the improvements and more.

•   Once the repairs are completed, another inspection occurs to verify that the work has been satisfactorily finished. The escrow account can then release the funds.

It’s important to note that not all transactions qualify for an escrow holdback. The criteria can vary between lenders, property, and even type of transaction (sale of existing property or of a new construction home).

Recommended: What to Look for When Buying a House

What Qualifies for an Escrow Holdback?

Generally, lenders prefer that repairs take place prior to the closing, but exceptions can be made — like when repairs must be delayed due to inclement weather.

This may limit escrow holdbacks to repairs that require some work on the outside of the home, such as repairs to a roof, yard, or plumbing accessed outdoors.

Here are some types of repairs that are factors that affect property value and residents’ safety and may qualify for an escrow holdback:

•   Patio problems

•   Pest control

•   Roof repair

•   Septic tank issues

•   Sprinkler system problems

•   Yard cleanup

Again, there are no sure things or guarantees of how an escrow holdback will work. That’s because it is ultimately up to all of the involved parties to agree on the terms.

Beyond the weather causing a delay, lenders are often looking to determine whether the repairs present a risk to the property (their collateral) or present health and safety issues to the prospective occupants. As you might imagine, a lender generally won’t want to make a loan for a property that they believe could threaten the health or safety of its occupants.

Recommended: The 7 Steps to Buying a House

What if Your Situation Doesn’t Qualify for a Holdback?

Say you believe there is an issue that merits an escrow holdback, but the lender doesn’t approve it. Now what? There’s not much, unfortunately, that you can do in this situation. The most likely scenario is that the closing date will need to be pushed out to make time for any required repairs before loan closing.

As you pursue an escrow holdback, it might be helpful to understand that some lenders’ guidelines may not offer escrow holdbacks under any conditions.

This could be due to such issues as the follow-up involved in closing the holdback proves too arduous. Or perhaps there are difficulties in getting the repairs completed within the specified period of time given. If lenders have been burned in any of these ways in the past, they may decide the process is too risky.

In the event that a lender refuses an escrow holdback agreement, you might have to delay your closing. If the lender also refuses to make a loan, you (the buyer) could be in a very tough spot. Even if you’re willing to pay for the cost of repairs in order to move forward with the lending process, this may not be in your best interest.
You do not yet own the property, and issues can arise from making repairs.

It may be wise to get your real estate lawyer’s and real estate agent’s opinions about how to handle this kind of difficult situation. They can help you explore any options that exist.

Recommended: First-time Homebuyer’s Guide

The Takeaway

Escrow holdbacks can be a way to solve for needed repairs of a property you are interested in buying or have already begun to purchase. By keeping funds in this kind of account, the parties involved may be able to satisfactorily complete the work needed and pay for it in a clear and equitable way.

No matter your situation, you’ll likely want to work with a lender that can help you navigate the home-buying process. While you’re shopping for a mortgage, check out customer service reviews in addition to rates and terms.

SoFi offers mortgage loans with competitive rates and low down payment options. Plus, the process is simple, quick, and convenient.

Looking for an affordable mortgage loan that you can access easily? See what SoFi has to offer!

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SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Better to buy or rent? The price-to-rent ratio is a reference point that can help gauge affordability in any city — especially for people on the move. More specifically, the price-to-rent ratio can be helpful when looking at a certain area and deciding whether to sink your life savings into a home, or pay a landlord and wait to buy.

Read on to see the home price-to-rent ratio in some of the biggest U.S. cities.

First, What Is the Price-to-Rent Ratio?

The price-to-rent ratio compares the median home price and the median annual rent in a given area. (You’ll remember that the median is the midpoint, where half the numbers are lower and half are higher.) To make sense of a city’s price-to-rent ratio, here’s a general idea of what the number suggests:

•   A ratio of 1 to 15 typically indicates that it’s more favorable to buy than rent in a given community.

•   A ratio of 16 to 20 indicates that it’s typically better to rent than buy.

•  A ratio of 21 or more indicates that it’s much better to rent than buy.

As you can see, the ratios could be useful when considering whether to rent or buy. Investors also often look at the ratios before purchasing a rental property.

The number also may be used as an indicator of an impending housing bubble. A substantial increase in the ratio could mean that renting is becoming a much more attractive option in that specific housing market.

If you’re exploring different areas, it can also be a good idea to estimate mortgage payments based on median home prices. That way, you can determine if it’s a cost you can reasonably afford to add to your budget on a monthly basis.

Recommended: How to Apply for a Home Loan Online

Price-to-Rent Ratio by City

Here are 52 popular metropolitan areas and their price-to-rent ratios. As of the third quarter of 2022, the median home sale price in the U.S. was $454,900, the Federal Reserve Bank of St. Louis reported.

Median sale price listed comes from Redfin as of December 2022. Median rents listed come from the Zumper National Rent Report from November 2022, based on a one-bedroom apartment. Remember, as home prices and rents shift over time, so do the ratios.

1. San Francisco

It’s no secret that San Francisco housing prices are way up there. The median sale price was $1,352,500, and the median rent for a one-bedroom apartment was $3,000 per month (or $36,000 a year). That gives the hilly city a price-to-rent ratio of nearly 38.

2. San Jose, Calif.

Golden State housing continues its pricey reputation in San Jose. The median sale price here was $1,222,500, and the city had a median one-bedroom rent of $30,480 annually ($2,540 a month), leading to a price-to-rent ratio of 40.

3. Seattle

The Emerald City had a median sale price of $820,000. Meanwhile, the median annual rent for a one-bedroom was $23,160, for a price-to-rent ratio of around 35.

4. Los Angeles

A median sale price of $965,000 and a median one-bedroom rent of $29,160 a year ($2,430 a month) shines a Hollywood light on renting, with a rent-to-price ratio of 33.

5. Long Beach, Calif.

With a median home price of $765,000 and one-bedroom rent averaging $1,770 a month, Long Beach earned a ratio of 36.

6. Honolulu

The ratio in the capital of Hawaii is a steamy 25, with a $552,500 median sale price and a median rent of $21,600 per year.

7. Oakland, Calif.

Oakland, across the bay from San Francisco, had a median sale price of $870,000 and median rent of $26,760 a year ($2,230 a month). This earned the location a price-to-rent ratio of 32.

8. Austin, Texas

A hotbed for artists, musicians, and techies, Austin had a price-to-rent ratio of nearly 27. This was thanks to a median sale price of $540,000 and median annual rent of $20,160.

9. San Diego

Hop back to Southern California beaches and “America’s Finest City,” where a median sale price of $835,000 and median rent of $30,000 a year led to a ratio of almost 28.

10. New York, N.Y.

The median sale price here was $790,000 and median rent was $45,480 a year ($3,790 a month), which equates to a price-to-rent ratio of roughly 17.

Of course, the city is composed of five boroughs: the Bronx, Brooklyn, Manhattan, Queens, and Staten Island, and it’s probable that most of the sales under $790,000 were not in Manhattan (where the median sale price was $1.2 million) or Brooklyn (where the median was $950,000). Just looking at Manhattan using the same annual average rent figure, the ratio looks more like 26.

11. Boston

With a median sale price of $775,000 and median rent of $36,000 a year, Beantown had a price-to-rent ratio of over 21.

12. Portland, Ore.

The midpoint of buying here of late was $524,500, compared with median rent of $18,480 per year, for a price-to-rent ratio of 28.

13. Tucson, Ariz.

In Tucson, the median sale price of $329,950 and median annual rent of $11,280 came out to a ratio of 29.

14. Denver

The Mile High City logged a renter-leaning ratio of nearly 29, thanks to a median sale price of $575,000 and median annual rent cost of $20,040.

15. Colorado Springs, Colo.

With a median sale price of $420,000 and annual rent of $14,760, this city at the eastern foot of the Rocky Mountains had a recent price-to-rent ratio of 28.

16. Albuquerque, N.M.

In the Southwest, Albuquerque heated up to a ratio of 26, based on a median home sale price of $300,000 and annual rent of $11,400.

17. Washington, D.C.

The nation’s capital is another pushpin on the map with a high cost of living. The median sale price of $650,000 compares with median rent of $27,600 annually ($2,300 a month), translating to a ratio of nearly 24.

18. Mesa, Ariz.

With a median sale price of $430,000 and median annual rent of $16,320, Mesa has a price-to-rent ratio of 26.

19. Las Vegas

Sin City has reached a ratio of 25, based on a $385,000 median sale price vs. $15,600 in annual rent.

20. Phoenix

Phoenix’s price-to-rent ratio has revved up to 24, with a median home sale price of $408,000 and $16,680 in rent.

21. Raleigh, N.C.

North Carolina’s capital, the City of Oaks, logs a ratio of nearly 27. This is based on a $407,500 median home sale price and median annual rent of $15,240.

22. Tulsa, Okla.

Tulsa had a price-to-rent ratio of 19, with median annual rent of $10,680 and home sale prices at a median of $203,750.

23. Dallas

This sprawling city had a recent median sale price of $400,000 and median annual rent of $17,040, leading to a price-to-rent ratio of 23.

24. Sacramento, Calif.

This Northern California city had a recent median sale price of $450,000 and median annual rent of $18,720, for a price-to-rent ratio of 24.

25. Fresno, Calif.

Fresno makes the list with a price-to-rent ratio of 20, based on median home sale prices of $380,000 and median annual rent of $15,960.

26. Oklahoma City

The capital of Oklahoma had one of the lower price-to-rent ratios until recent home price spikes. It logs a ratio of 24 lately, based on a median sale price of $251,800 and median annual rent of $10,440.

27. Arlington, Texas

Back to the Lone Star State, this city between Fort Worth and Dallas has a price-to-rent ratio of 24. This is thanks to a median sales price of $320,000 and median annual rent of $13,200.

28. San Antonio

This Texas city southwest of Austin had a median sale price of $285,000 and median annual rent of $13,920, resulting in a price-to-rent ratio of 20.

29. El Paso, Texas

El Paso traded a low price-to-rent ratio for a higher one when home prices rose. It’s at a 23, based on recent figures of a median sale price of $235,000 and median rent at $10,200 a year.

30. Omaha, Neb.

With a median sale price of $255,000 and median annual rent of $10,920, Omaha has a recent home price-to-rent ratio of 23.

31. Nashville, Tenn.

The first Tennessee city on this list is the Music City, with a price-to-rent ratio of 21. Nashville has a median sale price of $440,000 and a median annual rent of $20,400 ($1,700 per month).

32. Virginia Beach, Va.

The ratio here has nearly reached 20, based on a median home sale price of $330,000 and median rent of $16,800 per year.

33. Tampa, Fla.

This major Sunshine State city has a price-to-rent ratio of almost 21, based on a median home sale price of $410,000 and median annual rent of $19,800.

34. Jacksonville, Fla.

This east coast Florida city had a recent ratio of 19, based on a median sale price of $289,000 and median rent of $15,000 per year.

35. Charlotte, N.C.

Charlotte’s price-to-rent ratio of 22 arises from a median home sale price of $391,900 and median annual rent of $17,760.

36. Fort Worth, Texas

Panther City’s price-to-rent ratio has crept up to 22, based on a median home sale price of $340,000 and median rent of $15,120 per year.

37. Houston

Houston, we have a number: it’s a price-rent-ratio of 19. That’s based on a median sale price of $305,000 and median annual rent of $16,080.

38. Louisville, Ky.

Kentucky’s largest city has a median home sale price of $224,950 and median annual rent of $12,720. That leaves Louisville with a price-to-rent ratio of almost 18.

39. Columbus, Ohio

The only Ohio city on this list has a price-to-rent ratio of 19, due to a median sale price of $249,900 and median annual rent of $12,840.

40. Atlanta

Heading South, Atlanta has a median sale price of $400,000 and median annual rent of $19,440, for a price-to-rent ratio of 20.

41. Miami

Those looking to put down roots in this vibrant city will find a price-to-rent ratio of just under 19, based on a median home sale price of $525,000 and median rent of $19,200 annually.

42. Minneapolis

The Mini-Apple is sweeter on renting, with a ratio of 21. This is based on a median sale price of $320,000 and median annual rent of $14,880.

43. New Orleans

Next up is another charming southern city. New Orleans has a price-to-rent ratio of nearly 18, given a median sale price of $325,000 and median rent of $18,240 per year.

44. Kansas City, Mo.

In this Show-Me State city, a median home value of $246,000 and median annual rent of $12,720 equate to a price-to-rent ratio of 19.

45. Chicago

Chi-Town’s 14 price-to-rent ratio is based on a $310,000 median home sale price and $22,440 median annual rent.

46. Memphis, Tenn.

Memphis logs a price-to-rent ratio of nearly 15, with a median home sale price of $179,500 and median annual rent of $12,240.

47. Indianapolis

The ratio in this capital city is 18, thanks to a median home sale price of $225,000 and median annual rent of $12,360.

48. Philadelphia

This major East Coast city had a recent median sale price of $250,750 and median annual rent of $17,640, for a price-to-rent ratio of 14.

49. Baltimore

Charm City had a recent median home sale price of $215,000 and median annual rent of $16,560, resulting in a price-to-rent ratio of 13.

50. Newark, N.J.

Newark, anyone? The median sale price here is $409,000, with median rent at $1,400 a month (or $16,800 a year), leading to a ratio of 24.

51. Milwaukee

Milwaukee is slightly more favorable to homebuyers than renters, thanks to a price-to-rent ratio of 15. This Midwest city had a recent median sale price of $180,000 and median annual rent of $11,640.

52. Detroit

Detroit saw a spike in home sale prices, though the latest median sale price was a relatively low $82,000, compared with median annual rent of $13,200. This resulted in a price-to-rent ratio of 6.

Recommended: Cost of Living Index by State

How to Calculate Price-to-Rent Ratio

If you don’t see your city on the list, rest assured that it’s possible to calculate price-to-rent ratio yourself. To do so, you’ll simply take the median home sale price in your area and divide it by median annual rent.

Here’s an example: Let’s say the median rent in a city is $3,000 a month, and the median sale price is $1 million. You’d divide $1 million by $36,000 ($3,000 per month multiplied by 12, the number of months in the year). The result is a price-to-rent ratio of nearly 28.

The Takeaway

The price-to-rent ratio lends insight into whether a city is more favorable to buyers or renters. Usually in a range of 1 to 21-plus, the ratio is useful to house hunters, renters, and investors who want to get the lay of the land.

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Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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If you’re fortunate enough to have a family member or close friend who is giving you funds to put towards a down payment, congratulations. But in this scenario, a gift letter can be an important part of validating money given to you for the down payment or closing costs on a home.

Approximately 22% of first-time homebuyers received gift funds to help with the purchase of a home, according to a 2022 National Association of Realtors^® (NAR) survey.

Properly documented gift funds will help the mortgage loan to pass underwriting so your loan may be approved. In this guide, you’ll learn the story on gift letters, how they differ for various types of mortgages, plus other important details.

What Is a Gift Letter?

A mortgage gift letter is a legal document whose primary purpose is to state that down payment funds given to the borrower are not expected to be repaid. The lender wants to ensure that the borrower is not taking on more debt to help finance the mortgage, even if it is money from family or friends. The letter is required to pass underwriting.
It’s essential that a gift letter include all the necessary elements to be considered in your loan application.


💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡

What Should Be Included in Gift Letters?

Lenders usually provide a standard gift letter for you and the donor to complete, but it’s helpful to know what needs to be stated. Gift letters should include the following details:

•   Dollar amount of the gift

•   Name of the donor, address, phone number, and details of the account from which the money will be or was drawn

•   Relationship to the borrower

•   Name of the borrower, address, and phone number

•   Address of the home associated with the down payment

•   The donor’s signed statement saying the funds will not need to be repaid by the borrower

•   Language saying the funds were not made available to the donor by any party interested in the sale of the property

•   The dated signatures of borrower and donor.

Note: Along with a gift letter, the lender may want to see proof of funds in the donor’s account and evidence the money was deposited into the borrower’s account.

Does Timing and Amount of a Gift Matter?

When it comes to gift letters, when and how much you received may need to be documented.

Amount

There typically is no limit on the amount of gift money, but when a deposit is more than half of your monthly household income, lenders usually will want an explanation.

Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.

For USDA loans and FHA loans, you’ll need to explain any amount over 1% of the purchase price or appraised value of your home that was deposited in your account recently. There are exceptions, including tax refunds and bonuses, that do not need to be “seasoned” or explained.

Timing

A lender will look at bank statements for the past 60 to 90 days. Amounts that existed in your account before this time are considered seasoned, and you may not need to provide a gift letter for that money. The amount of a deposit inside that time frame may need a letter of explanation.

If you have money in other places, you’ll want to deposit it into your bank account for proper seasoning.

Who Can Give Down Payment Gifts?

Down payment gift regulations vary by loan type, but generally, gift funds are allowable on many mortgage types from close family members or friends. There are some key differences between regulation for down payment gifts for conventional and government home loans (USDA, VA, and FHA mortgages).

FHA Loans

Under Federal Housing Administration guidelines, gift funds for the down payment are allowable from the following donors:

•   Relatives of the borrower

•   The borrower’s employer or labor union

•   A close friend with a clearly defined and documented interest in the borrower

•   A charitable organization

•   A government agency or public entity that provides homeownership assistance to low- and moderate-income families or first-time homebuyers.

The gift must not come from an entity that has an interest in the sale of the property, such as the seller, the builder, the real estate agent, or the broker.

Buying a fixer-upper? This guide to FHA 203(k) loans and options could be a good read.

Conventional Loans

Under conventional loan guidelines (meaning non-government), gift funds are allowable from these sources:

•   A relative, which Fannie Mae defines as someone related by blood, marriage, adoption, or legal guardianship

•   A domestic partner or fiance.

The donor may not be anyone with an interest in the transaction, such as the builder, developer, or real estate agent.

USDA or VA Loans

With loans backed by the Department of Agriculture or Veterans Affairs, the only people who cannot provide gift funds are those who would benefit from the sale, such as the seller, lender, real estate agent, or developer. The gift funds must be properly sourced, which means the lender wants to see a paper trail from the bank account of the donor to that of the borrower.


💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.¹

Are There Limits on Gifts?

No, but some loans may require borrowers to come up with a portion of the down payment. This is what’s known as a minimum borrower contribution, and it applies to conventional loan financing. It is different based on what type of real estate is being purchased, be it a primary residence, second home, or investment property.

Primary Residences

For primary residences, there is no minimum borrower contribution. All of the money needed to complete the transaction can be a gift. This is true whether the loan-to-value ratio is above or below 80% for conventional financing.

Second Homes

For second homes, if the loan-to-value is above 80% (meaning the down payment was less than 20%), borrowers must make a minimum contribution of 5% from their own funds. This is also true on principal units with two to four units.

Investment Properties

Gift funds are not allowed on conventional mortgages for investment properties. Fannie Mae also states that gift funds are not to be used for investment properties.

Recommended: How to Buy a House From a Family Member

How Does This Affect Taxes?

Taxes may affect the donor of the funds, unless the home purchaser makes special arrangements to pay taxes on the gift funds.

The money gifted may be excluded from tax as per the annual exclusion amount. The IRS says the annual exclusion for gifts is $17,000 for 2023. This is per person, so if buying real estate with a partner, the amount doubles to $34,000.

If the gift is from a set of parents, each parent can gift that amount to each of the borrowing partners. This allows for $68,000 to be gifted before triggering the gift tax. In other words:

•   Parent 1: $17,000 for borrowing partner 1, $17,000 for borrowing partner 2 = $34,000

•   Parent 2: $17,000 for borrowing partner 1, $17,000 for borrowing partner 2 = $34,000

Adding the amount for both parents contributing for both borrowers equals $68,000.

If that amount is exceeded, each donor can also claim it as part of the lifetime exclusion on estate taxes, which has a limit of $13.61 million for 2024.

Gift Equity Letters vs Gift Letters for Mortgages

A gift of equity is when the seller gives a portion of the home’s equity to the buyer. It is transferred to the buyer as a credit in the transaction and may be used to fund all or part of the down payment on principal or second homes.

If there is a gift of equity, a gift of equity letter is required. A signed gift letter and settlement statement with the equity gift will be retained in the loan file.

While there are similarities, there are also some differences.

Gift of Equity	Gifts for Mortgages
Must be applied as a reduction in purchase price or credit	Gifts can be an unlimited amount but are not accepted for investment properties
Borrower may not receive cash back at closing for gift equity	Borrower can receive funds back at closing
Required to notify appraiser of equity gift	Appraiser doesn’t need to know about it
Is from the seller, who can be a relative. For FHA loans, only equity gifts from family are acceptable	Is from a donor related to the borrower
Can be used to fund the down payment and closing costs	Can be used to fund the down payment and closing costs
Permitted for principal and second homes	Permitted for principal and second homes

Whether you’re fortunate enough to receive a gift or you’re making your own way toward homeownership, this mortgage calculator may come in handy.

Recommended: Mortgage Loan Help Center

The Takeaway

A gift letter ensures that the money, or equity, you receive when buying a home is validated when your mortgage loan goes through underwriting. It’s a necessary step on your way to loan approval that a good mortgage lender may be able to help you with.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

^‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.
^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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