The gift of equity for a conventional loan is quite simple, mathematically. The owner of the home sets the price at fair market value and agrees to sell the home to their relative. In the transaction, at least 20% of the value of the home is given to the buyer as equity.
The buyer arranges for a loan that is 80% of the home’s value, removing the requirement for PMI.
This type of transaction saves the buyer thousands of dollars in PMI payment over the years and keeps a particular home within the family. It also allows people to help their relatives without the need for writing them a large check.