How does buying a home from a family member (a non-arm's-length sale) need to be structured?
Usually as a regular purchase with a new mortgage that pays off the seller's loan, and the deed should match that. A family seller can also give you part of their equity as your down payment by selling below the appraised value. Any money a relative gives you to help qualify has to be documented as a gift, not a private loan.
Last updated September 29, 2026Can I just take over my relative's mortgage?
Usually not. Most mortgages have a due-on-sale clause that lets the lender demand payoff when the home changes hands. Federal law (the Garn-St Germain Act) exempts certain family transfers, like a spouse or child becoming an owner or a relative inheriting after the borrower's death, but a sale to a relative generally isn't one of them. The clean way to settle the seller's loan and put the debt in your name is a proper purchase, or in some cases a refinance, with a new loan. An informal handoff leaves the seller liable and the loan exposed to the clause.
Which deed do we need?
It depends on the structure:
- A quitclaim deed fits a transfer with no new financing, like an outright gift of the property, adding or removing a name or fixing how title is held. It passes only whatever interest the signer has, with no promise that the title is clear.
- A warranty deed is what lenders and title insurers commonly require when there's a new purchase mortgage or refinance, so the title can be insured for the loan.
- A quitclaim doesn't pay off the existing mortgage. The original borrower stays liable, and recording one can trigger the due-on-sale clause.
Can a family member gift equity instead of us bringing cash?
Yes. With a gift of equity, the seller sells below the appraised value and the difference counts as a gift toward your down payment and closing costs. Fannie Mae allows it on a home you'll live in or a second home, documented with a signed gift letter and shown on your closing paperwork.
What if a relative gives us money to help qualify?
It has to be a documented gift, with a signed letter saying it doesn't need to be repaid. A private loan you don't disclose changes your real monthly obligations and your debt-to-income ratio, which is why lenders check.
It depends on your situation:
- The seller still owes on the home: structure it as a purchase with a new loan that pays theirs off.
- The seller owns it free and clear and is giving it to you: a quitclaim for a straight gift may fit, since there's no new loan.
- You need a new mortgage: expect a warranty deed.
- The family will sell below market: a gift of equity can cut the cash you bring.
| Seller still has a mortgage | A purchase with a new loan, not just a deed transfer |
|---|---|
| Outright gift or title change, no new loan | A quitclaim deed generally works |
| New mortgage involved | A warranty deed is commonly required |
| Seller wants to help with the down payment | A gift of equity, with a gift letter |
| Relative gives you cash | Must be a documented gift, not a loan |
Related questions
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- can Someone Sign for Me Using Power of Attorney at a Mortgage or HELOC Closing
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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
Sourced from licensed loan officers and brokers in the FreeRateUpdate network.
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.