How to Buy a House From a Family Member

Yes, you can buy a house from a family member, and most of these sales work like any other purchase. The usual path is a written contract, a new mortgage, an appraisal and a price close to market value. Three decisions then change what you pay: the price (at or below the appraised value), who pays the closing costs, and whether the seller gives you a gift of equity. If the price lands below market value, have a tax professional or real estate attorney review the deal before anyone signs.

What lenders expect when you buy a house from a family member

Lenders call a sale between relatives a related-party or identity-of-interest transaction. That label doesn’t block the loan. Instead, the lender looks harder at the price, the gift paperwork and the source of your down payment.

Buying a house from family still takes an appraisal, and you still qualify on your own credit, income and debts. For example, Fannie Mae figures a purchase loan’s loan-to-value ratio (LTV, the loan as a share of the home’s value) from the lower of the sales price or the appraised value (Selling Guide B2-1.2-01). A new conforming loan on a one-unit home can go up to $832,750 in most counties in 2026, according to FHFA.

If you plan to buy a home with a relative rather than from one, see our guide to buying a house with multiple owners.

3 ways to buy a house from a family member

Most family sales fall into one of three types, and each one changes what you pay up front.

How to buy a house from a family member, step by step

The steps match a normal purchase. However, family deals often skip the listing agent, so you and the seller handle more of the paperwork.

1. Agree on a price backed by an appraisal

Start with what the house is worth today. A family can order an independent appraisal or review recent nearby sales before settling on a number. That way, nobody anchors on a sentimental value the lender’s appraiser won’t support.

2. Get pre-approved

A lender reviews your credit, income, debts and assets, then tells you how much you may borrow. Tell the lender early that the seller is a relative, because that changes some loan rules. Our mortgage pre-approval guide covers what lenders check.

3. Sign a written purchase contract

Put the price, any gift of equity, who pays which closing costs and the closing date in writing. The lender needs the contract, and it also protects the relationship if plans change.

4. Get the appraisal and an inspection

The lender orders its own appraisal. Separately, hire a home inspector even if you grew up in the house. Here’s why every buyer needs a home inspection.

5. Handle title and closing

A title company or closing attorney searches for liens, arranges title insurance and records the deed. Deed steps, transfer taxes and property tax reassessment rules differ by state, so let them handle those details. Also budget for the usual closing costs, which the contract can assign to either side.

Using a gift of equity to buy a house from a family member

A gift of equity is a credit from the seller’s equity to the buyer, shown on the settlement statement. It lets a parent sell to a child below value while the loan still counts the full value. If you want to buy a house from your parents at a discount, this is the tool lenders recognize.

Say a parent’s house appraises at $400,000. The parent sells it to their child for $400,000 and gives a $40,000 gift of equity. The child borrows $360,000, a 90% LTV, and the credit covers the down payment. This example leaves out closing costs, mortgage insurance and other loan fees.

By contrast, if the contract simply said $360,000 with no gift of equity, the lender would value the home at $360,000. In that case, the down payment would have to come from other funds. When the house is paid off, the whole value is equity, so the parent can size the gift freely.

Conventional loans (Fannie Mae and Freddie Mac)

• Fannie Mae allows a gift of equity on a principal residence or second home purchase. It can fund the down payment and closing costs, but not reserves (Selling Guide B3-4.3-05).
• Under B3-4.3-04, the donor must be a relative or have a close family-like relationship with you.
• A one-unit principal residence needs no minimum contribution from your own funds. A two- to four-unit home, or a second home above 80% LTV, needs 5% from you.
• Your file needs a signed gift letter with the amount and a no-repayment statement, plus a settlement statement listing the gift.
• Freddie Mac allows a gift of equity from a related person on a primary residence or second home, but not for reserves or cash back (Guide Section 5501.4).

FHA loans

HUD Handbook 4000.1 lets only family members give equity on a home sold to another family member (II.A.4.d.iii(F)(4)). Both the donor and the borrower sign the gift letter. HUD’s family list includes parents, grandparents, children, siblings, aunts, uncles and in-laws.

A family sale normally caps FHA’s LTV at 85% (II.A.2.b.ii(A)). However, the cap doesn’t apply when you buy a relative’s principal residence as your own. It also lifts if you’ve rented the relative’s property for at least six months before the contract.

USDA and VA loans

USDA’s HB-1-3555 (Attachment 9-A) applies a gift of equity as a reduction to the purchase price, and the appraiser must know about it. It can’t provide cash back or count toward reserves. For a VA loan, the VA lender sets the terms, so ask before you sign.

A cash gift follows different rules. For that, see the do’s and don’ts of down payment gifts.

Selling below market value: tax questions to ask

The IRS treats any transfer without full value in return as a gift. So a below-market sale is partly a gift, and the seller generally owes any gift tax, according to the IRS gift tax FAQ.

For 2026, the annual exclusion is $19,000 per recipient, and each spouse gets their own. When a gift of equity exceeds the exclusion, the seller generally files Form 709. Even so, a filing doesn’t mean tax is due. The gift counts against the seller’s lifetime exclusion, $15 million for 2026, before any gift tax applies.

Two more questions belong in front of a CPA:

• Your tax basis. IRS Publication 523 says a home received as a gift generally carries the donor’s adjusted basis, and a bargain sale has special rules. A lower basis can mean a larger taxable gain when you sell.
• The seller’s capital gain. A seller who meets the ownership and residence tests may exclude up to $250,000 of gain ($500,000 for a married couple filing jointly), per Publication 523.

Bring the appraisal and the draft contract, since the answers depend on each family’s numbers.

Taking over a parent’s mortgage

To take over a parent’s mortgage, you generally need the lender’s approval through a loan assumption. FHA, VA and USDA loans are generally assumable if you qualify, while most conventional loans aren’t. Our guide to assumable mortgages explains the process.

Most mortgages include a due-on-sale clause, which lets the lender demand full payment when the home changes hands. The Garn-St Germain Act (12 U.S.C. 1701j-3(d)) bars enforcing that clause on certain transfers, such as when the borrower’s children become owners. Still, the parent stays on the loan unless the lender approves an assumption, and the lender will check your credit, income and debts.

Buying out a sibling or an inherited house

If you co-own a house with a sibling, you can refinance to buy out their share. Fannie Mae treats this as a limited cash-out refinance when the home was jointly owned for at least 12 months (Selling Guide B2-1.3-02). All owners sign a written agreement on the transfer and the proceeds.

A recent inheritance is an exception to the 12-month rule. Because you take sole ownership, you can’t receive cash from the refinance, and you must qualify on your own. The same rules cover a spouse after a divorce, which our divorce and mortgage guide explains.

The title-and-refinance route

Some families add the buyer to the title first. Later, the buyer refinances and pays the relative from the proceeds. This is a cash-out refinance, with tighter limits than a purchase:

• At least one borrower must have been on title for six months, per Fannie Mae Selling Guide B2-1.3-03, with exceptions for inherited or court-awarded property.
• An existing first mortgage being paid off must be at least 12 months old.
• Conventional (one-unit principal residence) and FHA cash-out loans both top out at 80% LTV.
• Adding a relative to title is a transfer, so ask an attorney or CPA about due-on-sale, gift tax and state transfer tax.

Never take the owner off title just to make the deal look right to a lender. That can make it look like a sale, and misstating a transaction on a loan application can amount to mortgage fraud.

Mistakes to avoid when you buy a house from a family member

• Misstating occupancy. A house you buy for a parent isn’t your principal residence unless you live there. Fannie Mae’s Family Opportunity Mortgage is the exception when the parent can’t work or lacks the income to qualify (Selling Guide B2-1.1-01). See our Family Opportunity Mortgage guide. Never tell a lender you’ll live in a house if you won’t.
• Setting a price the appraisal won’t support. The lender uses the lower appraisal, and you cover the gap in cash.
• Skipping the inspection. Knowing a house well isn’t the same as knowing its condition.
• Working without a written contract. Lenders need one, and it also settles who pays what.
• Leaving out the tax review. A below-market price raises gift tax and basis questions.

FAQ: how to buy a house from a family member

Can you buy a house from a family member?

Yes, as long as you qualify for the loan and the home appraises. Lenders add rules for sales between relatives, such as gift letters and FHA’s identity-of-interest LTV limits.

What is the cheapest way to buy a house from a family member?

A below-market sale with a gift of equity usually takes the least cash from the buyer. The gift can cover your down payment, and on a conventional loan it can also cover closing costs.

What is a gift of equity?

It’s a credit from the seller’s equity to the buyer at closing. Fannie Mae, Freddie Mac and FHA allow one from a related seller with a signed gift letter.

Do you pay gift tax if you buy a house below market value from family?

Usually not, because the IRS says the seller generally owes any gift tax. Even when the seller files Form 709, the gift uses up part of a $15 million lifetime exclusion for 2026 before tax applies.

Can you take over your parents’ mortgage?

Sometimes. FHA, VA and USDA loans can generally be assumed with lender approval, while most conventional loans can’t.

How do you buy someone out of a house?

You refinance in your own name and pay the other owner for their share. Fannie Mae requires 12 months of joint ownership, except after a recent inheritance, plus a written agreement.

Your next step

Start with an appraisal and a lender who has closed family sales before. Once you know the value and what you qualify for, choose between a full-price sale, a gift of equity or a buyout. Then bring the numbers to a CPA before anyone signs.