I am doing this kind of deal right now for someone who is buying her late grandmother's co-op from her mother and uncle. Her mother is gifting her share. The contract is at the full purchase price agreed, with an addendum that would reference the gift of equity, and you would have them sign a gift letter as well. You can use your money for closing costs, or have a seller's concession written in to the contract for the amount of closing costs, and use the rest of the 5% to lower your loan amount. You may want to double check me on this, but just as an aside, even as a first time home buyer, I do not believe you can get the credit if it is a family sale.