How does buying a home from a family member (a non-arm's-length sale) need to be structured?
Buying a home from a family member, sometimes called a non-arm's-length sale, is usually set up as either a purchase with a new mortgage or a refinance that moves the existing loan into your name, and the deed you use should match whichever path you pick. Family sellers can also gift part of their equity to cover your down payment instead of you bringing cash, and any money a relative gives to help you qualify has to be documented as a gift, not a private loan.
Last updated July 22, 2026Should this be a purchase or a refinance?
When a family member sells you a home they still owe money on, there are two common ways to consolidate the debt into your name: treat it as a purchase transaction with new financing, or set it up as a refinance. Either approach can work depending on the paperwork, the appraisal, and what the lender needs to satisfy the existing loan. This is generally allowed because typical mortgages have a "due-on-sale" clause that lets the lender demand full payoff when the property changes hands, but a federal law (the Garn-St Germain Act) carves out exceptions, including certain transfers to relatives, so the transfer itself does not automatically force a payoff in every case. Even so, the safest way to fully settle the original loan and put the new owner on the hook for it is a proper purchase or refinance transaction, not an informal handoff.
What deed do we need for the title transfer?
The right deed depends on which structure you use, and this is a common point of confusion:
- A quitclaim deed works for a no-new-financing transfer between family, such as a straight gift of the property, adding or removing someone's name on title, or fixing an error in how title is held. It only transfers whatever interest the person signing actually has, with no guarantee the title is free of liens or claims, and title insurers typically won't insure a quitclaim transfer when a lender is involved.
- When the deal instead involves new institutional financing, meaning a true purchase-money mortgage or a refinance, lenders and title insurers commonly require a warranty deed (general or special) so the title can be insured for the new loan.
- A quitclaim deed by itself does not pay off or transfer the existing mortgage. The original borrower stays personally liable for that loan, and simply recording a quitclaim deed can trigger the due-on-sale clause described above.
Can a family member gift equity instead of us bringing cash?
Yes. In a gift-of-equity structure, the family seller agrees to sell below market value and treats the difference between the sale price and the appraised value as a gift toward your down payment. This can let you qualify without bringing your own cash to closing, as long as the loan program and lender allow it and the gift is documented in the standard way (a signed gift letter and, often, a comparison to the appraised value).
What if a relative gives us money to help us qualify?
Any funds a family member contributes to help you qualify, beyond a gift of equity in the home itself, must be documented as a gift, not a private loan. Lenders generally require a signed gift letter confirming the money does not need to be repaid, because an undisclosed loan changes your real monthly obligations and debt-to-income ratio. A lender can typically run an estimated monthly payment, covering principal, interest, taxes, and insurance, for the specific purchase price and down payment you're considering, so you can see how the numbers work before committing to a structure.
It depends on your situation
- If the family seller still owes money on the home: the sale is usually structured as a purchase or a refinance to fully settle that loan and put you on the new one, rather than a simple deed transfer.
- If the family seller owns the home free and clear and wants to give it to you outright: a quitclaim deed for a straight gift may be appropriate, since no new financing is involved.
- If you need a new mortgage to buy the home: expect a warranty deed to support title insurance on that loan, not a quitclaim deed.
- If the family is willing to sell below market value: a gift of equity may reduce or eliminate the cash you need to bring to the table.
- If you're refinancing an existing family loan into your name: you'll be quoted a standard first-lien refinance rate, and the actual number depends on your credit, loan type, and market conditions at the time you apply.
| Existing mortgage on the property? | Structure as a purchase or refinance, not just a deed transfer, to fully address the loan |
|---|---|
| Only a title change or outright gift, no new loan? | Quitclaim deed is generally appropriate |
| New purchase-money mortgage or refinance involved? | Warranty deed generally required for the title to be insurable |
| Family seller wants to help with down payment? | Gift of equity can apply against the required down payment |
| Family member gives cash to help you qualify? | Must be documented as a gift with a signed gift letter, not a loan |
Related questions
- is My Mortgage Assumable, and What Happens to the Loan if I Pass Away
- if My Property Is Titled in a Trust, LLC, or Estate, or Has an Unresolved Title Issue, Can I Still Refinance or Get a Home Equity Loan
- do Liens, a Life Estate Deed, or Title Seasoning Affect HELOC Eligibility
- can Someone Sign for Me Using Power of Attorney at a Mortgage or HELOC Closing
- HELOC vs home equity loan vs cash-out refinance
Sources
- https://www.lower.com/mortgages/how-to-buy-a-house-from-a-family-member-in-a-non-arms-length-transaction
- https://www.rocketmortgage.com/learn/how-to-buy-from-a-family-member
- https://foustlaw.com/due-on-sale-exceptions
- https://www.millermillercanby.com/the-garn-st-germain-act-what-you-should-know-if-you-own-property-subject-to-a-mortgage
- https://www.rocketmortgage.com/learn/quitclaim-deeds
- https://www.legalzoom.com/articles/when-to-use-a-quitclaim-deed
- https://www.alperlaw.com/florida-asset-protection/quit-claim-deed-florida
- https://www.rocketmortgage.com/learn/warranty-deed
- https://selling-guide.fanniemae.com/sel/b3-4.3-05/gifts-equity
- https://bpfund.com/fannie-mae-and-freddie-mac-guidelines-for-gift-of-equity
- https://themortgagereports.com/75227/gift-of-equity-for-home-buyer-seller
- https://selling-guide.fanniemae.com/sel/b3-4.3-04/personal-gifts
- https://www.experian.com/blogs/ask-experian/down-payment-gift-rules
- https://www.mgic.com/mortgage-connects/structuring-mortgage-loans-using-gift-funds
Educational information only, not individualized financial or legal advice. Program details and rates change; verify current terms with a licensed loan officer before making a decision.