Use gift funds for your down payment effectively

You can use gift money for a down payment on most mortgage types. FHA allows 100% of the down payment as a gift. Conventional loans may require some of your own funds depending on down payment size. You need a signed gift letter stating no repayment is expected, plus documentation showing the donor had the funds and transferred them to you. Gifts from family are accepted; gifts from sellers or interested parties have restrictions.

Gift Fund Rules by Loan Type

FHA Loans

Gift allowed for: 100% of down payment and closing costs

Acceptable donors:

• Family members
• Close friends (with documentation of relationship)
• Employers
• Labor unions
• Charitable organizations
• Government agencies

Not acceptable:

• Sellers or their agents
• Real estate agents
• Builders
• Anyone with interest in the transaction

Conventional Loans

If putting 20%+ down:

• 100% can be gift funds

If putting less than 20% down:

• Some lenders require portion from your own funds
• Rules vary by lender and program
• Check with your specific lender

Acceptable donors:

• Family members (blood, marriage, adoption)
• Domestic partners
• Fiancé/fiancée
• Employers (under certain conditions)

VA Loans

Gift allowed for: 100% of closing costs (no down payment required)

Acceptable donors:

• Family members
• Close friends
• Employers
• Active military relief funds

USDA Loans

Gift allowed for: Closing costs (no down payment required)

Acceptable donors:

• Family members
• Close friends with documented relationship
• Employers
• Charitable organizations

The Gift Letter

What It Is

A gift letter is a signed statement confirming:

• The money is a true gift
• No repayment is expected
• The relationship between donor and recipient

Required Information

Every gift letter must include:

Element	Description
Donor’s name	Full legal name
Donor’s address	Current mailing address
Donor’s phone	Contact number
Donor’s relationship	To the borrower
Gift amount	Exact dollar amount
Property address	Being purchased
Statement	No repayment expected
Donor signature	Original signature
Date	When letter is signed

Sample Gift Letter Language

“I/We [Donor Name(s)] am providing a gift of $[Amount] to [Borrower Name] for the purchase of the property at [Property Address]. This gift requires no repayment and is given freely without expectation of anything in return.

My relationship to the borrower is: [Relationship]

Donor Name: _______________ Donor Address: _______________ Donor Phone: _______________ Donor Signature: _______________ Date: _______________“

What Makes a Gift Letter Invalid

Missing elements:

• No statement about repayment
• Missing donor contact info
• No property address

Wrong information:

• Donor has interest in transaction
• Relationship doesn’t qualify
• Amount doesn’t match documentation

Documentation Requirements

Paper Trail

Lenders want to see:

1. Gift letter
2. Proof donor had the funds
3. Proof of transfer to borrower
4. Funds in borrower’s account

Donor’s Bank Statement

Shows:

• Donor’s name on account
• Balance sufficient for gift
• Statement date near transfer date

What lenders look for:

• Funds were in donor’s account (not recently deposited)
• Donor could actually afford the gift

Transfer Documentation

Acceptable proof:

• Copy of canceled check
• Bank statement showing withdrawal
• Wire transfer confirmation
• Bank-to-bank transfer record

Borrower’s Bank Statement

Shows:

• Gift deposited in borrower’s account
• Amount matches gift letter
• Sourced and documented

Common Gift Fund Scenarios

Scenario 1: Parent Gives Gift Before Closing

Timeline:

1. Parent provides gift letter
2. Parent wires $30,000 to child
3. Child’s bank statement shows deposit
4. Lender documents the trail

Documentation needed:

• Gift letter
• Parent’s bank statement (showing funds)
• Wire confirmation
• Child’s bank statement (showing receipt)

Scenario 2: Gift at Closing Table

How it works:

• Donor brings certified check to closing
• Check goes directly to title company
• Applied to buyer’s closing funds

Documentation needed:

• Gift letter
• Donor’s bank statement
• Copy of certified check

Scenario 3: Gift Already in Account

If gift was deposited months ago:

Challenge: Lender sees large deposit in bank statements

Solution:

• Provide gift letter dated when gift was given
• Donor’s bank statement from that time
• Transfer records from that time

What Counts as “Seasoned” Funds

The Seasoning Concept

“Seasoned” funds have been in your account long enough that their source doesn’t need explanation.

Typical seasoning period: 60-90 days

Seasoned vs Unseasoned

Deposit Age	Documentation Needed
60-90+ days	Generally not questioned
Under 60 days	Source documentation required
Large amounts	Always require documentation

Gift Received Long Ago

If you received the gift 3+ months ago:

• May not need current gift letter
• Depends on deposit visibility in statements
• Ask lender what they need

Gift Fund Limits

No Federal Limit for Mortgage Purposes

For mortgage qualification, there’s no limit on gift amount. You can receive $50,000, $100,000 or more as a gift for your down payment.

Gift Tax Considerations

Annual exclusion (2024): $18,000 per recipient per donor

What this means:

• Gifts over $18,000 require donor to file gift tax return
• Donor rarely owes actual gift tax (lifetime exemption is high)
• This is the DONOR’S tax issue, not yours

Example:

• Parents give $40,000 for down payment
• Mom and Dad can each give you $18,000 tax-free
• Remaining $4,000 requires them to file form, but likely no tax owed

This Doesn’t Affect Your Mortgage

Gift tax rules are separate from mortgage rules. Lenders don’t limit gifts based on IRS limits.

Who Can Give a Gift

Acceptable Donors by Relationship

Relationship	FHA	Conventional	VA
Parent	✓	✓	✓
Sibling	✓	✓	✓
Grandparent	✓	✓	✓
Aunt/Uncle	✓	✓	✓
Cousin	✓	Varies	✓
Fiancé/Fiancée	✓	✓	✓
Domestic partner	✓	✓	✓
Close friend	✓	Usually no	✓
Employer	✓	Varies	✓

Unacceptable Donors

Interested parties:

• Seller
• Real estate agent (either side)
• Builder or developer
• Lender

These parties can provide credits or concessions, but not “gifts.”

Documenting Non-Family Relationships

For friends or extended relationships:

• Letter explaining relationship
• How long you’ve known each other
• Why they’re giving the gift
• More scrutiny from underwriting

Problems with Gift Funds

Gift Is Actually a Loan

Red flag: Donor or borrower later reveals gift is a loan

Consequence:

• Loan denial
• Potential fraud if misrepresented
• Must disclose any repayment expectation

Insufficient Documentation

Problem: Can’t prove source of donor’s funds

Solution:

• Provide additional bank statements
• Explain unusual deposits in donor’s account
• Document any complicating factors

Gift Timing Issues

Problem: Gift appears after closing disclosure

Consequence:

• May delay closing
• New documentation required
• Possible disclosure changes

Prevention: Get gift early, document completely

Seller-Funded “Gift”

Scheme: Seller gives money to friend who gives to buyer

Consequence:

• This is illegal
• Loan denial
• Potential fraud charges

Gift Fund Process Timeline

Ideal Timeline

2-3 weeks before closing:

• Receive gift letter from donor
• Obtain donor’s bank statement
• Wire or transfer funds

1-2 weeks before closing:

• Deposit appears in your account
• Provide documentation to lender
• Lender reviews and clears

At closing:

• Funds are verified and ready
• No last-minute surprises

Last-Minute Gifts

If gift comes right before closing:

• Provide same documentation
• May delay closing for verification
• Title company may accept certified check from donor at closing

Frequently Asked Questions

Can my parents give me money for a down payment?

Yes. Parents are the most common gift donors. You’ll need a gift letter and documentation showing the money came from their account to yours.

Do I have to pay back a gift?

No. By definition, a gift has no repayment expectation. If you must repay it, it’s a loan and must be disclosed as debt.

Is there a limit on how much I can receive?

No mortgage limit. You can receive any amount as a gift. Gift tax rules are separate and are the donor’s responsibility, not yours.

Can I use a gift from a friend?

Depends on loan type. FHA and VA allow friend gifts with relationship documentation. Conventional loans typically require family relationships.

What if the gift is in my account already?

You’ll still need a gift letter and donor bank statement from when the gift was given. If it’s been 60-90+ days, documentation requirements may be simpler.

Can the seller give me a gift for down payment?

No. Seller contributions are limited to closing costs/credits, not down payment. A seller can’t give you gift funds.

Does the gift affect my taxes?

Gift recipients generally don’t owe taxes on gifts. The donor may need to file a gift tax return for large gifts, but rarely owes actual tax.

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