Can I buy my parents' house below market value (gift of equity)?

Yes. The difference between fair market value and purchase price is a "gift of equity" that counts as your down payment. FHA, conventional, and most loan types allow this.

Buying a family member's home below market value is a "gift of equity" transaction - the price discount counts as your down payment. Example: home appraises at $500K, parents sell to you at $250K. The $250K equity gap acts as 50% down payment. Most loan programs accept this: FHA (very common, no LTV restriction beyond standard 96.5%), conventional / Fannie HomePath (allowed for primary residence), VA (allowed). What you'll need: (1) a signed gift-of-equity letter from the seller (your parent) stating the gift amount, that no repayment is expected, and acknowledging the discounted sale price; (2) an arms-length appraisal at the full $500K market value; (3) signed purchase contract at the agreed $250K; (4) standard income/credit qualification on the loan portion ($250K in this example). Tax consequences for the parent: the gift portion above the annual gift-tax exclusion ($18K/$36K per parent in 2026) counts against their lifetime estate-tax exemption ($13.61M as of 2026, so most families won't owe gift tax in practice). The parent files Form 709 to report it; no tax due unless the lifetime limit is exceeded. Tax consequences for you: zero. The discount is not income.