Using Gift Money for a Down Payment: What Homebuyers Need to Know
Saving for a down payment is one of the biggest hurdles to homeownership, especially for first-time buyers. But if a family member or close friend wants to help, gift money for a down payment can make buying a home more achievable.
Lenders allow gift funds for home purchases, but there are strict guidelines to follow. Here’s how to use gift money for a home down payment the right way.
Can You Use Gift Money for a Down Payment?
Yes, you can use gift funds to buy a home, but lenders require proper documentation to ensure it’s truly a gift—not a loan.
Many buyers receive financial help from family or friends. In fact, 39% of home buyers used gift money for their purchase, according to a 2023 Zillow survey. Lenders accept this as a valid source of funds, but any large deposits in your bank account will be reviewed for compliance.
Mortgage Down Payment Gift Rules by Loan Type
Different loan programs have specific rules about who can give a gift and how it must be documented.
Conventional Loan Gift Rules (Fannie Mae & Freddie Mac)
For conventional loans, gift funds can come from:
✔ A spouse
✔ A child or dependent
✔ A domestic partner
✔ Any relative by blood, marriage, or adoption
✔ A godparent
✔ A former family member
🚫 Who cannot provide gift money? Real estate agents, builders, and developers involved in the home sale.
💰 How much can be gifted? For primary residences, gift funds can cover 100% of the down payment. For multi-unit homes or second homes, buyers may need to contribute some of their own funds.
FHA Loan Gift Rules
FHA loans have a 3.5% minimum down payment, which can be fully gifted by:
✔ Family members (excluding cousins, nieces, and nephews)
✔ Employers or labor unions
✔ Charitable organizations
✔ Government homebuyer assistance programs
📌 Important: The donor cannot use a personal loan or credit card to fund the gift.
VA & USDA Loan Gift Rules
For VA and USDA loans, gift money for a down payment is allowed from almost anyone, including:
✔ Family members
✔ Close friends
✔ Employers
✔ Charitable organizations
🚫 Who cannot give gift funds? The seller, builder, or real estate agent involved in the transaction.
How to Use Gift Money for a Home Purchase
To use gift funds for a mortgage down payment, follow these steps:
1. Provide Proper Documentation
Lenders require proof that the money is a gift. Acceptable documentation includes:
✔ A copy of the donor’s check and your deposit slip
✔ Records of an electronic transfer
✔ A settlement statement verifying receipt of the funds
2. Get a Signed Gift Letter
A mortgage gift letter confirms that the funds are not a loan. The letter should include:
✔ Donor’s name, address, and contact info
✔ Their relationship to the borrower
✔ The home’s address
✔ The exact gift amount
✔ The date of the transfer
✔ The donor’s bank name and account number
✔ A statement confirming no repayment is required
Your lender may provide a gift letter template to make this process easier.
3. Time the Gift Strategically
If the gift is deposited 60+ days before applying for a mortgage, it becomes “seasoned money” and may not require full documentation.
4. Be Aware of Tax Implications
✅ Buyers don’t owe taxes on gift money.
⚠️ Donors may need to report the gift if it exceeds IRS limits. Consult a tax professional for guidance.
Alternatives to Using Gift Money for a Down Payment
If a gift isn’t an option, consider these down payment assistance solutions:
✔ Gift of Equity – If a family member sells you a home below market value, the difference can count as a down payment.
✔ Zero-Down Mortgages – VA and USDA loans allow no down payment for eligible buyers.
✔ Low-Down-Payment Loans – FHA loans require just 3.5% down, and some conventional loans allow 3% down with PMI.
✔ Down Payment Assistance Programs – Many state and local programs offer grants or low-interest loans to help cover down payments and closing costs.
Ready to Buy a Home?
Whether you’re using gift money for a home purchase or exploring low-down-payment mortgage options, I’m here to help! Let’s discuss your best financing options and get you pre-approved today.
