- A gift of equity is a discount that counts as your down payment. A relative sells you the house for less than it appraises for, and HUD lets the difference stand in for cash you would otherwise have to bring. No money moves, so there are no bank statements to chase.
- In practice it covers the whole 3.5 percent minimum required investment. HUD sets that investment at 3.5 percent of the Adjusted Value and names a family member as an acceptable gift donor. The handbook never joins those two rules in a single sentence, though, and it separately bars the seller from funding that investment, which is worth raising with your loan officer early.
- The trap is the 85 percent identity of interest cap, and the family exception is narrower than most pages admit. On a family sale the cap lifts only when you are buying a relative's principal residence, or a property you have rented from them for at least six months. A parent's rental house you have never lived in does not qualify, and the loan is capped at 85 percent.
- The phrase "gift of equity" does not appear in HUD's handbook at all. We searched the current edition, Update 18, and it returns zero occurrences. The rules live under "Gifts (Personal and Equity)" and under the identity of interest section, which is why so much of the advice online is second-hand.
- Nevada is unusually kind to family sales, but the exemption is narrow. The state constitution bars an inheritance tax outright, and NRS 375.090(5) exempts transfers within the first degree of lineal consanguinity or affinity from Clark County's $2.55 per $500 transfer tax. A parent to child sale fits. An aunt to niece sale is a valid FHA gift of equity that likely does not fit.
A gift of equity is when a family member sells you their home for less than the appraised value and the difference is credited to you as your down payment. FHA allows it, and in practice it covers the entire minimum required investment, which HUD sets at 3.5% of the Adjusted Value. The catch that decides most Las Vegas family sales is the identity of interest rule, which caps a family purchase at 85% of value unless you meet a written exception.
Because a sale between family members is by definition an identity of interest transaction, the maximum loan is cut to 85 percent of value unless your situation fits one of HUD's four written exceptions. The most common one is that you are buying the seller's principal residence. If your parent is selling you a rental property they have never lived in and you have never rented, the 85 percent cap applies and a gift of equity alone will not get you to closing.
That single distinction is worth more than everything else on this page. It is the difference between needing nothing out of pocket and needing tens of thousands of dollars, and it turns on a fact about the seller rather than a fact about you.
What follows is read out of HUD's own handbook, out of Nevada Revised Statutes, and out of the IRS inflation adjustments for 2026, with the arithmetic worked on a real Clark County price rather than a round number.
- A gift of equity is the gap between appraised value and the family sale price, credited to you instead of paid by you.
- It is normally used to satisfy all of the 3.5 percent minimum required investment, and only Family Members as HUD defines them may give one.
- Every family sale is an identity of interest transaction, capped at 85 percent loan to value, unless a written exception restores 96.5 percent.
- The exception that matters most: you are buying the principal residence of a family member, or a property you have rented from them for six months.
- Your loan to value is measured against the lower of price and appraised value, so the discount does not flatter your LTV. Landing at or below 90 percent changes how long you pay annual mortgage insurance.
What is a gift of equity on an FHA loan?
An FHA gift of equity is a credit rather than a payment. Your relative agrees to sell below what the house is worth, the appraisal establishes what it is worth, and the difference between those two numbers is treated as money you have put into the deal. Nothing is wired, nothing is deposited, and there is no seasoning question, because no cash ever existed.
Here is a detail almost nobody mentions, and it explains why so much of the advice on this subject is vague. The phrase "gift of equity" does not appear in HUD Handbook 4000.1. We downloaded the current edition, Update 18, at 14,445,636 bytes, converted all 1,872 pages to text, and searched it. The term returns zero occurrences. What the handbook actually carries is a section titled "Gifts (Personal and Equity)" and, inside it, "Standards for Gifts of Equity." The rules exist. The phrase everyone searches for does not, which is how a game of telephone gets started.
The handbook's definition of a gift is broad enough to cover both forms in one sentence: gifts refer to the contributions of cash or equity with no expectation of repayment. That last clause is the load-bearing one. If your relative expects the discount back, it is not a gift, it is undisclosed seller financing, and it will not survive underwriting.
Valley West takeThe most useful way to think about a gift of equity is that it is the only down payment source with no paper trail to build. A cash gift makes your lender chase the donor's bank statement, the withdrawal, and the deposit into your account. A gift of equity needs a letter and a settlement statement, because the credit happens on the closing statement rather than in anyone's checking account. That is a real reduction in the number of things that can go wrong two days before closing.
Can a gift of equity cover your entire FHA down payment?
In practice an FHA gift of equity covers the whole down payment, and that is how these files are underwritten every day. A buyer can genuinely arrive at closing having contributed none of their own savings toward the down payment. HUD gets there by implication rather than in a single sentence, though, and the second half of this section explains why that is worth knowing. Start with the requirement itself, which the handbook does state plainly:
In order for FHA to insure this maximum mortgage amount, the Borrower must make a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value.HUD, FHA Single Family Housing Policy Handbook 4000.1, section II.A.2.a.iv, Calculating Maximum Mortgage Amounts on Purchases, Last Revised 8/12/2026 · https://www.hud.gov/sites/default/files/Housing/documents/40001-hsgh-Update-18.pdf
Two words in that sentence carry the whole calculation, and they are Adjusted Value. It is not the appraised value, and it is not always the price. For a purchase, the handbook defines the Adjusted Value as the lesser of the purchase price less any inducements to purchase, or the Property Value.
So in a gift of equity the discounted family price is almost always the Adjusted Value, because it is the lower of the two figures. Everything else keys off it: your 3.5 percent, your maximum loan, and your loan to value. The generous appraisal does not raise the number your percentages are measured against. It only creates the room for the gift to exist.
HUD then lists who may give a gift, and the borrower's family member is first on that list. The handbook also refers in passing to "any Gift of the Borrower's MRI," a phrase that only makes sense if a gift can be the minimum required investment rather than merely extra money toward closing. Put those together and a family gift of equity funding the whole 3.5 percent is the ordinary reading.
The wrinkle almost nobody writes about
The same handbook says the funds for the borrower's minimum required investment must not come from the seller of the property, from anyone who benefits financially from the transaction, or from anyone those parties reimburse. In a gift of equity, your donor is also your seller.
HUD does not spell out how those two rules meet. We looked: the only written exception to the prohibited-source rule covers governmental entities acting through their own homeownership programs, not families, and the handbook nowhere states in terms that a family seller's equity gift satisfies the buyer's minimum investment.
The working answer, and the reason this is not a problem in real life, is that a gift of equity is not seller funds at all. Nothing is paid to you. The price is simply lower, and your investment is the equity you already hold the moment the deed records. That is how lenders underwrite it and it is not a controversial position. It is still worth asking your loan officer to confirm it against their investor's own overlays at application rather than at closing, because it is the one part of this structure HUD has not reduced to a sentence you can point at.
Who counts as a family member for an FHA gift of equity?
FHA permits a gift of equity only from a Family Member as HUD defines the term, and the handbook is unambiguous about it.
Only Family Members may provide equity credit as a Gift on Property being sold to other Family Members.HUD, FHA Single Family Housing Policy Handbook 4000.1, Standards for Gifts of Equity, Who May Provide Gifts of Equity, Last Revised 8/12/2026 · https://www.hud.gov/sites/default/files/Housing/documents/40001-hsgh-Update-18.pdf
The good news is that HUD's list is wider than most people assume, and it opens by saying it applies regardless of sex or legal marital status. It covers a child, parent, or grandparent, with a child meaning a son, stepson, daughter, or stepdaughter, and parent or grandparent including a stepparent, stepgrandparent, foster parent, or foster grandparent. It also covers a spouse or domestic partner, a legally adopted son or daughter including a child placed with you for legal adoption by an authorized agency, and a foster child.
The list keeps going sideways through the family too: a brother or stepbrother, a sister or stepsister, an uncle or aunt, and a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
A cousin is not on that list, and neither are nieces and nephews. Note too that the list is written from the buyer's point of view, so "grandparent" covers a grandchild buying from a grandparent even though the word grandchild never appears. Where a cash gift has a wider set of acceptable donors, including an employer or labor union, a charitable organization, a governmental entity running a homeownership program, and even a close friend with a clearly defined and documented interest in the borrower, the equity version is family only, because it is inseparable from the sale itself.
Hold that list in mind for the tax section further down, because Nevada's transfer tax exemption uses a completely different and much narrower definition of family, and the two do not line up.
Does the FHA identity of interest rule cap your loan at 85 percent?
The FHA identity of interest rule caps a family purchase at 85 percent by default, and then hands you four ways out. This is the rule that decides whether a Las Vegas family sale works, and it is the one most commonly glossed over.
Start with the definition, because it catches every reader of this page automatically.
An Identity-of-Interest Transaction is a sale between parties with an existing Business Relationship or between Family Members. The maximum LTV percentage for Identity-of-Interest transactions on Principal Residences is restricted to 85 percent.HUD, FHA Single Family Housing Policy Handbook 4000.1, section II.A.2.b.ii(A), LTV Limitations Based on Identities of Interest, page 180, Last Revised 8/12/2026 · https://www.hud.gov/sites/default/files/Housing/documents/40001-hsgh-Update-18.pdf
Read that and the position is stark. Buying from a relative is, by definition, an identity of interest transaction. The starting point is not 96.5 percent financing. It is 85 percent, which is a 15 percent down payment.
Then come the exceptions. The handbook lists four of them, lettered (a) through (d), and the first is the one that saves most family purchases. Read the table below with one thing in mind: exception (a) contains two separate routes, so four lettered exceptions produce five different ways to reach 96.5 percent.
| Your situation | Maximum LTV | What HUD requires |
|---|---|---|
| You are buying the principal residence of a family member, as your own principal residence | 96.5% | Exception (a), first route. The property must be the seller's principal residence. This is the everyday parent-sells-to-child case. |
| You have rented the property from that family member for at least six months immediately before the sales contract | 96.5% | Exception (a), second route. A lease or other written evidence verifying tenancy and occupancy is required. Six months is measured immediately predating the contract. |
| You are a tenant buying the property you rent, from anyone, after at least six months | 96.5% | Exception (d). Same evidence standard. This one does not depend on a family relationship at all, which is what separates it from the family route above. |
| You work for the builder and are buying one of its new houses or models as your principal residence | 96.5% | Exception (b). The employee must not be a family member of the builder. |
| A corporation relocated an employee, bought their house, and is selling it to another employee | 96.5% | Exception (c). The narrow corporate transfer case. |
| A relative sells you a property they have never lived in, and you have never rented it | 85% | None of the four exceptions applies. The rental house your parent owns in Henderson sits here. |
That last row is the one to check before anyone signs anything. It is not a technicality. On a $410,000 contract it is the difference between bringing nothing and bringing more than $21,000, and the worked example below shows exactly how that falls out.
Note also that the six month tenancy route is a genuine planning tool rather than a consolation prize. If a relative owns a property you would like to buy and has never lived in it, moving in as a documented tenant and waiting out six months before writing the contract converts an 85 percent deal into a 96.5 percent one.
It needs a real lease and real evidence of occupancy, and it needs the six months to sit immediately before the contract, so it is a decision to make early rather than a fix to apply late. The same six month tenancy idea shows up in our guide to FHA occupancy rules and investment property in Las Vegas, where the question runs the other direction.
The worked example, on a real Clark County price
Say your mother is selling you the Henderson house she has lived in for eleven years. It appraises at $450,000 and she agrees to sell it to you for $410,000. The $40,000 difference is the gift of equity.
Because she is selling her principal residence to a family member, the first exception applies and the 85 percent cap lifts. Your Adjusted Value is the lesser of the $410,000 price and the $450,000 appraisal, so it is $410,000. Your minimum required investment is 3.5 percent of that, which is $14,350. The $40,000 gift covers it nearly three times over, so you contribute nothing of your own toward the down payment and the surplus goes to closing costs.
Apply the whole gift to the purchase and your base loan amount is $410,000 minus $40,000, which is $370,000. That is a loan to value of 90.24 percent, comfortably inside the 96.5 percent ceiling.
Now change one fact and watch the deal break. Suppose the house is not where your mother lives. It is a rental she has owned for years and you have never been a tenant there. No exception applies, the cap holds at 85 percent, and your maximum base loan becomes 85 percent of $410,000, which is $348,500. To close you now need $410,000 minus $348,500, which is $61,500 of down payment. The $40,000 gift is still perfectly valid, but it no longer finishes the job, and you have to find $21,500 from somewhere else.
Same family, same house, same gift, same price. One fact about where the seller sleeps at night moves the cash you need by more than twenty-one thousand dollars.
Gift of equity calculator
Enter the appraised value and the price your relative has agreed to. This works out the gift, your Adjusted Value, the 3.5 percent minimum required investment, and what changes if the 85 percent identity of interest cap applies to you. Nothing leaves your browser.
Enter an appraised value and a price to see how the gift lands.
Illustrative only, and not a quote, offer, or commitment to lend. All loans are subject to credit, income, property, and underwriting approval. The 3.5 percent minimum required investment, the 96.5 percent purchase ceiling, the 85 percent identity of interest cap and the Adjusted Value definition are quoted from HUD Handbook 4000.1 in the sources below. This tool does not account for closing costs, seller credits, or your lender's own requirements.
The 90 percent line that changes how long you pay mortgage insurance
Here is a decision rule worth knowing before the contract is written, because after closing it cannot be undone.
FHA charges an annual mortgage insurance premium, and how long you pay it depends on one number recorded at origination. HUD's rule, in force for case numbers assigned on or after June 3, 2013, is that a loan with an original principal balance at or below 90 percent loan to value carries annual mortgage insurance until the end of the term or for the first 11 years, whichever comes first. Above 90 percent, it runs to the end of the term or the first 30 years. On a 30 year loan that difference is close to two decades of premiums.
The same Mortgagee Letter defines how that loan to value is measured, and this is where the gift of equity surprises people. FHA divides the loan amount by the lesser of the purchase price or the appraised value. The high appraisal does not help you here. Only a smaller loan does.
Return to the example. A $370,000 loan against a $410,000 Adjusted Value is 90.24 percent, which is above the line. To land at or below 90 percent you need a base loan of $369,000 or less, which means a gift of $41,000 rather than $40,000. One thousand dollars more of family generosity, structured before the contract, moves your annual mortgage insurance from as long as thirty years down to a maximum of eleven. Our page on how FHA mortgage insurance works in Las Vegas covers the premium side in full.
Step 1
Ask where the seller actually lives. If the house is their principal residence, or you have rented it from them for six months, you are on the 96.5 percent track.
Step 2
Take 3.5 percent of the lower of the price and the appraisal. If the gift is bigger than that, your down payment is covered.
Step 3
Check whether a slightly larger gift puts the loan at or below 90 percent of the same figure. If it does, the mortgage insurance clock drops to 11 years.
This turns on facts a calculator cannot see: whether the seller occupies the property, how long you may have rented it, and what the appraisal is likely to support in that Clark County neighborhood. A local loan officer can read those with you before your family agrees to a price, which is the only moment the structure can still be changed. Soft credit check to start, no impact to your score. All loans are subject to credit, income, property, and underwriting approval.
Check my eligibilityWhat does an FHA gift of equity letter have to include?
An FHA gift of equity letter needs four things, and HUD lists them exactly. The gift letter must be signed and dated by both the donor and the borrower, and it must include the donor's name, address, and telephone number, the donor's relationship to the borrower, the dollar amount of the gift, and a statement that no repayment is required.
That is the entire required contents. It is a short document, and the most common reason it comes back is the missing signature from one side rather than anything about the wording.
What matters more is what a gift of equity does not require. For a cash gift, HUD makes your lender document the transfer itself, which means the donor's bank statement showing the withdrawal plus evidence of the deposit into your account, or a canceled check, or a withdrawal receipt, or an electronic transfer record.
A gift of equity has no such trail because no funds move. The credit appears on the settlement statement, and the settlement statement is the evidence. Our guide to FHA gift funds and the gift letter for Nevada buyers walks through the cash version, and comparing the two documentation burdens side by side is the fastest way to see why families with equity often prefer this route.
One more rule worth naming: cash on hand is not an acceptable source of donor gift funds. That applies to the cash version rather than the equity version, but it is the reason a relative who wants to help with money kept outside a bank cannot simply hand it over, while a relative who wants to help with equity they already own faces no such problem.
How does the appraisal decide the size of the gift?
The appraisal sets the ceiling on the gift, because the gift is defined by the gap between appraised value and price. If the appraisal comes in lower than your family expected, the gap narrows and the gift shrinks with it, automatically.
Work it through on the example. Your mother agreed to $410,000 believing the house was worth $450,000. If the appraiser returns $425,000, the gift of equity is no longer $40,000. It is $15,000, because that is the whole difference that now exists. Your Adjusted Value is still $410,000, so your minimum required investment is still $14,350, and the shrunken gift still just covers it. Move the appraisal to $420,000 and the gift is $10,000, which is less than the required investment, and you have to make up $4,350 yourself.
This is why a family sale should be priced after a realistic look at comparable sales rather than before. A price set from what a relative believes the house is worth, or from what it was worth in a hotter market, is the single most common way these transactions unravel. The appraiser is measuring the property against the same standards as any other FHA purchase in Clark County, which we cover in FHA appraisal requirements in Nevada.
Two related points. First, an FHA appraisal is also a condition review, so a family home that has been lived in for decades and gently neglected can trip minimum property requirements that a cash sale between relatives would never have surfaced. Second, the loan is still bounded by the FHA loan limit for the county regardless of the gift, and for a one unit property in Clark County that limit is $541,287 for 2026. Our page on the 2026 FHA loan limits for Clark County has the multi unit figures.
What does a Las Vegas family sale cost in transfer tax and gift tax?
A Las Vegas family sale costs less in tax than almost anywhere else in the country, and in a parent to child sale it can be close to nothing. Nevada is one of the friendliest states in which to move a house within a family, and the reasons are written into the state constitution and into statute.
Start with the constitution, which settles the inheritance question in seven words.
No inheritance tax shall ever be levied.Constitution of the State of Nevada, Article 10, Section 1, subsection 7 · https://www.leg.state.nv.us/const/nvconst.html
Nevada also has no state gift tax and no state estate tax, so the only transfer-related bills in play are the county's real property transfer tax and, at the federal level, the gift tax reporting rules.
The Clark County transfer tax. Nevada's Department of Taxation sets a base rate of $1.95 for every $500 of the property's value or any fraction of it, and Clark County adds $0.60, for a combined $2.55 per $500. On the $410,000 example that is 820 increments of $500, which comes to $2,091. It is collected by the County Recorder when the deed is recorded.
The family exemption, and its sharp edge. NRS 375.090 lists the transfers that are exempt, and subsection 5 covers family:
A transfer, assignment or other conveyance of real property if the owner of the property is related to the person to whom it is conveyed within the first degree of lineal consanguinity or affinity.Nevada Revised Statutes, NRS 375.090(5), Exemptions · https://www.leg.state.nv.us/nrs/nrs-375.html
Read that against HUD's family list from earlier and the mismatch jumps out. HUD accepts a gift of equity from a grandparent, a sibling, an aunt or uncle, and a range of in-laws. Nevada's exemption is written as a degree test rather than a list, and the degree it sets is the first degree of lineal consanguinity or affinity. On the standard meaning of those terms that is the parent and child relationship and its equivalents by marriage: a grandparent is a second degree lineal relative, and a sibling is not lineal at all.
So a parent to child sale is a valid FHA gift of equity that also sits squarely inside the statutory words. An aunt selling to a niece is an equally valid FHA gift of equity that does not obviously fall within them, and on a $410,000 house that is $2,091 nobody had budgeted for.
We are describing what the statute says rather than telling you how the Recorder will rule on your deed. The value and any exemption claim are declared on the Declaration of Value form filed with the deed, so confirm the treatment with your title company or the Clark County Recorder before you assume it, and take tax advice from a professional qualified to give it.
Federal gift tax. A gift of equity is a gift, so the federal reporting rules apply to the person giving it, not to you. For 2026 the IRS annual exclusion is $19,000 per recipient. A $40,000 gift from one parent to one child exceeds that, so a gift tax return on Form 709 is required. Tax is a different question from reporting: the excess is applied against a basic exclusion amount that the IRS set at $15,000,000 for 2026, so for the overwhelming majority of families the return is paperwork rather than a bill.
There is also structure available. Two parents each making a gift to a married child and their spouse can spread the same gift across four exclusions of $19,000, which is $76,000 of annual exclusion, and on a $40,000 gift of equity that removes the filing question entirely. Whether that fits your family is a conversation for a tax professional, and this article is not tax advice.
Gift of equity, cash gift, or Nevada down payment assistance?
A gift of equity, a cash gift and Nevada down payment assistance solve the same problem by different routes, and they are not mutually exclusive. A gift of equity needs a relative who owns a house and has equity in it. A cash gift needs a relative with savings. Nevada down payment assistance needs neither, only that you qualify for the program.
| Source | What it needs | Documentation burden | Watch out for |
|---|---|---|---|
| Gift of equity | A family member selling you a property with equity in it | Lowest. A signed gift letter plus the settlement statement. No funds transfer to trace. | The 85 percent identity of interest cap, and an appraisal that comes in low and shrinks the gift. |
| Cash gift funds | A family member (or employer, union, or charity) with bankable savings | Higher. Gift letter plus the donor's withdrawal and your deposit, or a certified check at settlement. | Cash on hand is not an acceptable donor source. Timing of the transfer against underwriting. |
| Nevada down payment assistance | Meeting the program's income, price and occupancy rules | Moderate. A separate application to the program alongside the loan file. | Program terms, any second lien, and whether the seller understands the offer. |
| Your own savings | Seasoned funds in your own account | Low once sourced and seasoned. | Large recent deposits will be questioned and must be explained. |
The stacking question comes up constantly, and the honest answer is that it depends on the program rather than on FHA. FHA does not object to a gift of equity sitting alongside assistance, but an assistance program may have its own view about a non-arm's length purchase, about the appraisal, or about the minimum the buyer must contribute. That is a question to put to the program before you write the offer rather than after.
If you do not have a relative with a house to sell, the assistance route is where most Clark County first-time buyers end up, and the two main Nevada options are covered in our comparison of Worker Advantage against Home Is Possible. Essential workers in particular should start at the Nevada Worker Advantage program guide, which is the deepest thing we have written on the subject, and buyers weighing the general programs can start with Las Vegas down payment assistance for 2026.
What goes wrong on Clark County family sales?
Most Clark County family sales that fail do so before anyone applies, which is the frustrating part, because by then the structure is fixed. Five recur.
Nobody asked whether the seller lives there. This is the big one, and it is the whole reason the identity of interest section above runs as long as it does. A family agrees a price, everyone is delighted, and the file reaches underwriting before someone works out that the 85 percent cap applies and the buyer is $21,500 short.
The price was set from sentiment rather than comparables. A generous discount off an imaginary value is not a gift of equity. It is a normal purchase at a normal price, and the appraisal will say so.
The relative expected the money back. A quiet family understanding that the discount will be repaid, in a will or otherwise, contradicts the gift letter that both parties sign. HUD defines a gift as carrying no expectation of repayment, and the letter says so explicitly.
The seller has a mortgage bigger than the discounted price. A gift of equity only exists where there is equity. If the payoff is $380,000 and the family price is $370,000, the seller has to bring money to closing to convey clear title, which is usually the end of the plan.
The buyer did not think about title and occupancy. A non-arm's length sale between relatives draws more scrutiny, not less, and a lender is entitled to test whether the buyer really intends to occupy. If a parent stays in the house after the sale, that is a conversation to have openly at application. Where the intention is that a relative helps you qualify without living there, that is a different structure entirely, and it is covered in FHA non-occupant co-borrower rules in Las Vegas.
Valley West takeThe cheapest hour in this entire process is the one spent before the family agrees on a number. Every expensive problem on the list above is free to fix at that point and costly or impossible to fix later. If your family is discussing a sale over a holiday weekend, the useful thing to bring is not a pre-approval. It is the answer to two questions: does the seller live there, and what have similar houses on that street actually closed for.
Article history
- September 6, 2026 · Published, with every HUD rule read out of the current handbook rather than a summary. Handbook 4000.1 was downloaded from hud.gov at 14,445,636 bytes, converted locally to 1,872 pages of text, and the identity of interest section at pages 180 and 181, the Standards for Gifts of Equity at pages 259 and 260, the Family Member definition at page 136, and the Adjusted Value and minimum required investment rules were read directly.
- September 6, 2026 · A widely repeated framing was tested and corrected. The phrase "gift of equity" returns zero occurrences in the current handbook, and the family exception to the 85 percent cap is not "any sale between relatives" as commonly written. It requires the seller's principal residence or six months of documented tenancy, so this page states the exception in HUD's own terms.
- September 6, 2026 · A stale figure was caught before it reached this page. An automated read of Mortgagee Letter 2025-23 returned 2023 loan limits. The letter's own text was extracted instead, giving the 2026 one unit low-cost limit of $541,287 at 65 percent of the $832,750 conforming limit.
The bottom line for Las Vegas family sales
A gift of equity is the cleanest down payment source FHA allows, because the money never has to exist. A relative sells you their house below its appraised value, the difference counts as your investment, and it can cover all of the 3.5 percent HUD requires.
What decides whether it works is not the size of the gift. It is whether your purchase escapes the 85 percent identity of interest cap, and the ordinary way it does is that you are buying the seller's own home, or a property you have rented from them for six months with a lease to prove it. Establish that first.
Then price the house against real comparable sales so the appraisal supports the gift you are counting on, and check whether a slightly larger gift lands the loan at or below 90 percent of value, which cuts annual mortgage insurance from as long as thirty years to eleven.
On the Nevada side you are fortunate. There is no state gift tax, the constitution forbids an inheritance tax, and a parent to child transfer falls within the words of the NRS 375.090(5) exemption from a transfer tax that would otherwise run $2,091 on a $410,000 house. Confirm the exemption with your title company, and take the federal gift tax return question to a tax professional.
If you want the wider picture before any of this, start with the complete guide to FHA loans in Las Vegas or with FHA loan requirements in Nevada if what you are really asking is whether you qualify at all. Our parent company covers the wider FHA picture for Southern Nevada buyers across every program we run. And once the house is yours, insuring a property that has just changed hands inside a family has its own wrinkles, which Valley West Insurance handles for Las Vegas owners.
Frequently asked questions
What is a gift of equity on an FHA loan?
An FHA gift of equity is when a family member sells you their home for less than its appraised value and the difference is credited to you as your down payment. No cash changes hands, so there is no transfer to document. HUD Handbook 4000.1 covers it under Standards for Gifts of Equity and defines a gift as a contribution of cash or equity with no expectation of repayment. The phrase gift of equity itself does not appear anywhere in the current handbook, Update 18, which is why so much of the guidance online is second-hand.
Can a gift of equity cover the entire FHA down payment?
In practice yes, and that is how lenders underwrite it. HUD requires a Minimum Required Investment of at least 3.5 percent of the Adjusted Value, names the borrower's family member as an acceptable gift donor, and refers to a gift of the borrower's minimum required investment. On a $410,000 Adjusted Value that investment is $14,350, so a $40,000 gift of equity covers it with room left for closing costs. One caveat worth raising with your loan officer early: the handbook separately says the funds for that investment must not come from the seller, and in a gift of equity the donor is the seller. The working answer is that a gift of equity is not seller funds, because nothing is paid and the price is simply lower, but HUD does not reconcile the two rules in a single sentence.
Does the FHA identity of interest rule limit a family purchase to 85 percent?
By default yes, and then four lettered exceptions can lift it. HUD Handbook 4000.1 defines an identity of interest transaction as a sale between parties with an existing business relationship or between family members, and restricts the maximum loan to value on principal residences to 85 percent. Exception (a) covers family member transactions and offers two routes on its own: buying the principal residence of a family member, or buying a property owned by a family member in which you have been a tenant for at least six months immediately before the sales contract. Exception (b) is a builder's employee, exception (c) is a corporate transfer, and exception (d) is a current tenant buying the property they rent from anyone, family or not, after at least six months. A relative's rental property you have never lived in fits none of them, so the 85 percent cap holds.
Who counts as a family member for an FHA gift of equity?
HUD states that only family members may provide equity credit as a gift on property being sold to other family members, and defines family member regardless of sex or legal marital status as a child, parent or grandparent including step and foster relationships, a spouse or domestic partner, a legally adopted son or daughter, a foster child, a brother or stepbrother, a sister or stepsister, an uncle or aunt, and a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law. A cousin is not on the list, and neither is a family friend.
What has to be in an FHA gift of equity letter?
Four items, in a letter signed and dated by both the donor and the borrower: the donor's name, address and telephone number, the donor's relationship to the borrower, the dollar amount of the gift, and a statement that no repayment is required. Unlike a cash gift, a gift of equity does not require evidence of a funds transfer such as the donor's bank statement or a canceled check, because no money moves. The credit appears on the settlement statement instead.
Do you pay Nevada transfer tax on a family gift of equity?
Often not, but the exemption is narrower than FHA's family list. Clark County charges $2.55 for every $500 of value, which is $2,091 on a $410,000 house, and NRS 375.090(5) exempts a conveyance where the owner is related to the person receiving it within the first degree of lineal consanguinity or affinity. A parent to child transfer sits inside those words. A grandparent is a second degree lineal relative and a sibling is not lineal at all, so those sales can be valid FHA gifts of equity without qualifying for the exemption. The value and any exemption claim are declared on the Declaration of Value filed with the deed, so confirm the treatment with your title company or the Clark County Recorder.
Does a gift of equity trigger federal gift tax?
It is a reportable gift for the person giving it, but tax is rarely due. The IRS annual exclusion for 2026 is $19,000 per recipient, so a $40,000 gift of equity from one parent to one child exceeds it and a Form 709 gift tax return is required. The excess counts against a basic exclusion amount the IRS set at $15,000,000 for 2026, so for most families the return is paperwork rather than a bill. Nevada itself levies no state gift tax and its constitution states that no inheritance tax shall ever be levied. This is general information rather than tax advice.
How does a gift of equity affect FHA mortgage insurance?
It can shorten it, if the gift is sized deliberately. HUD assesses annual mortgage insurance for the first 11 years where the original loan is at or below 90 percent loan to value, and for up to 30 years above that, for case numbers assigned on or after June 3, 2013. FHA measures that ratio against the lesser of the purchase price or the appraised value, so a generous appraisal does not help. On a $410,000 price, a $40,000 gift leaves a $370,000 loan at 90.24 percent, while a $41,000 gift leaves $369,000 at exactly 90 percent and moves the premium into the 11 year bracket.
Sources
- U.S. Department of Housing and Urban Development · FHA Single Family Housing Policy Handbook 4000.1, Update 18, sections marked Last Revised 8/12/2026. Section II.A.2.b.ii(A) at pages 180 and 181 for the identity of interest definition, the 85 percent maximum loan to value on principal residences, and the four lettered exceptions, being (a) family member transactions, which itself covers both a family member's principal residence and six months of tenancy in a family member's property, (b) a builder's employee, (c) a corporate transfer and (d) a tenant purchase; section II.A.2.a for the Adjusted Value on a purchase being the lesser of purchase price less inducements or the property value; section II.A.2.a.iv for the Minimum Required Investment of at least 3.5 percent of Adjusted Value and the 96.5 percent purchase ceiling; Standards for Gifts of Equity at pages 259 and 260 for the rule that only family members may provide equity credit as a gift and for the four required contents of the gift letter; and the Family Member definition at page 136: hud.gov (downloaded at 14,445,636 bytes and read September 6, 2026)
- U.S. Department of Housing and Urban Development · Mortgagee Letter 2013-04, Revision to the Period for Assessing Annual MIP, for annual mortgage insurance running to the first 11 years at or below 90 percent loan to value and up to 30 years above it for case numbers assigned on or after June 3, 2013, and for the rule that FHA calculates loan to value by dividing the loan amount before financed upfront premium by the lesser of the purchase price or the appraised value: hud.gov (read September 6, 2026)
- U.S. Department of Housing and Urban Development · Mortgagee Letter 2025-23, dated December 11, 2025, 2026 Nationwide Forward Mortgage Loan Limits, effective for case numbers assigned on or after January 1, 2026, for the one unit low-cost area limit of $541,287 set at 65 percent of the national conforming limit of $832,750, and for the two, three and four unit low-cost limits of $693,050, $837,700 and $1,041,125: hud.gov (downloaded and read September 6, 2026)
- State of Nevada · Nevada Revised Statutes, NRS 375.090, Exemptions, subsection 5, for the exemption covering a conveyance where the owner is related to the person to whom the property is conveyed within the first degree of lineal consanguinity or affinity: leg.state.nv.us (read September 6, 2026)
- State of Nevada · Constitution of the State of Nevada, Article 10, Section 1, subsection 7, for the provision that no inheritance tax shall ever be levied: leg.state.nv.us (read September 6, 2026)
- State of Nevada · Department of Taxation, Real Property Transfer Tax, for the base rate of $1.95 per $500 of value and the additional $0.60 applied in Clark County, giving a combined $2.55 per $500 collected by the County Recorder: tax.nv.gov (read September 6, 2026)
- Internal Revenue Service · IRS releases tax inflation adjustments for tax year 2026, summarising Revenue Procedure 2025-32, for the annual exclusion for gifts of $19,000 and the basic exclusion amount of $15,000,000 for 2026: irs.gov (read September 6, 2026)
Keep reading before your family agrees a price. These are the pages that decide whether a Las Vegas FHA purchase holds together: