Using Gift Funds for Your Down Payment

Many loan programs allow you to use gift funds from family members for your down payment. This can help buyers who have income but limited savings. However, lenders have specific rules about what counts as a gift and how it must be documented.

Who Can Give Gift Funds

• •Conventional: family members (parent, child, sibling, grandparent, or others per Fannie Mae rules)
• •FHA: family members, close friends with a clearly defined interest, employers, charities
• •VA: family members or anyone with a clearly defined interest

What Makes It a Gift

The money must be a true gift — not a loan. The donor must sign a gift letter stating:

• •The relationship to the borrower
• •The amount of the gift
• •That no repayment is expected or required

The lender will also verify the source of funds — usually a bank statement from the donor and a paper trail showing the transfer.

How Much Can Be a Gift

• •Conventional with 20% down: 100% of the down payment can be gift funds
• •Conventional with less than 20% down: at least 5% must be the borrower's own funds (some exceptions)
• •FHA: 100% of the down payment can be gift funds
• •VA: 100% of the down payment can be gift funds

Common Mistakes

• •Accepting the gift without a paper trail (cash deposits raise red flags)
• •Not getting the gift letter before closing
• •Using a loan disguised as a gift (lenders can detect this and will deny the loan)
• •Depositing the funds too late — do it well before applying

Key Takeaways

• •Gift funds are allowed by most loan programs with proper documentation
• •The donor must sign a gift letter stating no repayment is expected
• •Lenders verify the source and transfer of funds
• •100% of the down payment can be a gift on FHA and VA loans
• •Get the gift letter and transfer done early in the process