[ME] How should a gift of equity be documented and worded in a real estate purchase agreement?

Lexi, Chatbot

I understand that navigating financial gifts for a down payment can be challenging. Can you tell me if the gift is coming from a family member or someone else?

Lexi, Chatbot

Have you already discussed this situation with your bank or lender regarding their specific requirements for documenting the gift?

Jon

Hello, and thank you for reaching out! I'm Jon, a licensed attorney with over 13 years of experience, here to help.

I understand legal matters can feel overwhelming, but you're in good hands. My goal is to explain things clearly and guide you toward the best possible solution for your situation. Just a quick note: our conversation is for general legal information only and does not create an attorney-client relationship.

Can you tell me which state the property purchase is taking place in?

Jon

Thanks for sharing that. Could you let me know if the bank has provided any specific instructions or requirements for documenting the gift? This will help us ensure everything is in order.

Jon

Got it. Are you planning to give the money as a direct cash gift, or will it be transferred through a bank account or another method? I understand. Are you planning to give the money as a direct cash gift, or will it be transferred through a bank account or another method?

Jon

The Maine-specific property paperwork comes in the form of the Maine Real Estate Commission Purchase & Sale Agreement. How you list the gift depends on the type of gift you're giving.

If you're giving cash, the amount should be shown in the "Purchase Price" section as "Gift Funds" or "Cash from Borrower," which the bank will verify with your Gift Letter.

If you're doing a Gift of Equity, where you sell the house at a discount, the higher "official" sales price goes on the contract, and the discount is recorded as a gift. For example, if the house is worth $300,000 but you want them to owe only $240,000, you would list the sale price as $300,000. Then, in the "Additional Provisions" section, you would add: "Seller to provide a Gift of Equity to Buyer in the amount of $60,000 to be applied toward down payment and closing costs."

A few key points to keep in mind: the bank must see the money actually move, either to your kids' account or directly to the title company. Keep bank statements to show the transfer. If you're doing a Gift of Equity, the bank will require an appraisal to confirm the house is worth the higher listed price.

For tax purposes, in 2026 you can gift up to $19,000 per person ($38,000 for a couple) without filing a gift tax form with the IRS under the annual gift tax exclusion. (26 U.S.C. § 2503) Gifts above that are generally still tax-free due to the lifetime exemption, but you will need to file a simple form at tax time. Because the sale price you record on the Purchase & Sale Agreement is also the figure used to calculate transfer tax, you may also want to review Maine's Real Estate Transfer Tax law, which is based on the consideration stated in the deed. (36 ME Rev Stat § 4641-A)

Jon

I do hope the information I provided was helpful and addressed your question. If there's anything else you need, please don't hesitate to reach out. I'm always happy to assist. Wishing you a fantastic day ahead!