Rules for Using Gift Funds for a Down Payment on a House

Where do most buyers get their down payment funds?

According to data collected by the National Association of Realtors (NAR), here are the most common sources homebuyers use for their down payments:

• From personal savings: 49%
• Proceeds from the sale of a primary residence: 45%
• Gift from a relative or friend (all buyers): 8%
• Gift from a relative or friend (buyers ages 26 to 34): 27%

Not surprisingly, the percentage of homebuyers relying on gift funds for a down payment increases substantially in younger home shoppers.

Gift money down payment rules by loan type

Lenders have several requirements for gift funds based on the type of loan you’re using. Below, we’ll break down the general rules by loan type to help you understand what’s expected when you purchase a primary residence.

Conventional loans

A conventional loan is a private mortgage that is not backed by the federal government. 52% of first-time buyers used this type of loan to finance their home.

Most conventional mortgage loans will allow homebuyers to use gift money for a down payment and closing costs, but the gift funds must come from an acceptable donor source. Fannie Mae requires acceptable gift fund donors to fit into one of the following criteria:

• A relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship
• A non-relative that shares a familial relationship with the borrower defined as a domestic partner (or relative of the domestic partner), individual engaged to marry the borrower, former relative, or godparent.

Meanwhile, under Freddie Mac guidelines, gift funds are allowed if they come from a Related Person, a trust or estate established by a Related Person, or from unrelated individuals if given as a wedding or graduation gift. 

A Related Person includes immediate family members like a spouse, child, or legal dependent, as well as individuals related by blood, marriage, or adoption. It can also include a guardian, fiancé(e), domestic partner, or even an unrelated person with close, family-like ties to the borrower.

When using gifted funds for your down payment, you’ll also need to provide what’s known as a “gift letter” from the donor stating that the money does not need to be repaid. (More on this later in our post.) 

Some lenders may also require copies of bank statements showing the transfer of funds between the donor and you.

FHA loans

FHA loans are mortgage loans that are backed by the Federal Housing Administration and must be issued by an FHA-approved lender. FHA lenders typically serve borrowers with low-to-moderate income levels.

With an FHA loan, you can use gift funds for the entire down payment, regardless of how much you’re putting down. The donor can be a family member, close friend, your employer, labor union, or charitable organization, and you’ll need a gift letter. The FHA also requires you to verify the transfer of funds into your account, typically through a bank statement.

VA loans

VA loans allow veterans and service members to use gift funds for a down payment, even though no down payment is usually required. The rules are flexible as long as the gift doesn’t come from someone with a financial interest in the sale, such as the seller or real estate agent. You’ll still need a gift letter to document the contribution.

Gift funds can also be used to pay VA funding fees or closing costs. Again, you will need documentation of the money transfer.

USDA loans

USDA loans, like VA loans, typically don’t require a down payment. However, if you decide to put money down or cover other closing costs, gift funds are permitted. Gifted money will not be permitted to count as qualifying funds for required financial reserves.

As with other loans, the funds must come from a family member or someone with a close relationship with you who doesn’t have an interest in the sale. A gift letter and documentation of the transfer will be required.

What is a gift letter?

A gift letter is a document that certifies that the funds you’re receiving for your down payment are a gift, not a loan. Lenders require this letter to ensure the money doesn’t need to be repaid, which could affect your ability to afford the home.

The letter must include the donor’s name, contact information, relationship to you, the gift amount, and a statement that the funds are a gift with no repayment required. Both you and the donor will need to sign the letter, and your lender may ask for additional documentation to verify the transfer of funds.

Learn more about gift letters at this link. You can also use our free Mortgage Gift Letter Generator below to easily create a lender-approved letter with all the necessary details.

Vet the donor’s interests

Before accepting gift funds, it’s important to have a clear conversation with the donor about their motivations and expectations. While gift money is typically given with the best intentions, it’s crucial to ensure that the donor understands the implications and has no hidden expectations.

For example, you’ll want to confirm that the donor doesn’t expect repayment or any form of control over the property. If the donor might face financial hardship as a result of giving you the money, it’s wise to discuss alternatives. Additionally, make sure they’re aware of any tax implications that could arise.

How to document a downpayment gift

If you’re using gift money for your down payment, it’s important to have the right paperwork to keep things running smoothly with your lender. Here are some simple steps to help you document your gift funds the right way.

• Secure a gift letter: The person giving you the gift needs to write and sign a letter saying how much they’re giving, how they’re related to you, and that you don’t have to pay it back. Lenders need this letter to make sure the money is really a gift.
• Show proof of the transfer: You’ll need bank statements or transaction records that show the money moving from the giver’s account to yours. This helps lenders confirm that the money actually came from the donor.
• Share the donor’s financial information: Lenders may ask for the donor’s bank statements or proof of funds to ensure the gift is legitimate and available. This step verifies the donor has sufficient funds to make the gift.
• Confirm when the gift was sent: It’s best to document the gift transfer well before closing so there aren’t any last-minute surprises. Lenders need time to check that everything is in order.
• Keep all related messages: Save any emails, texts, or other messages about the gift, just in case lenders want more proof. This can make things easier if questions come up later.

How much down payment should you plan for?

According to real estate data provider ATTOM, the current median down payment on a house in the U.S. is $57,357, which is about 15% of the median home sales price of $385,000. NAR data reports a similar median down payment estimate of 15% for all buyers. 

To give you a clearer picture of what to expect, here’s a breakdown of down payments for various home values and percentages:

Home price	5% down	10% down	15% down	20% down
$300,000	$15,000	$30,000	$45,000	$60,000
$400,000	$20,000	$40,000	$60,000	$80,000
$500,000	$25,000	$50,000	$75,000	$100,000
$600,000	$30,000	$60,000	$90,000	$120,000
$700,000	$35,000	$70,000	$105,000	$140,000
$800,000	$40,000	$80,000	$120,000	$160,000
$900,000	$45,000	$90,000	$135,000	$180,000
$1,000,000	$50,000	$100,000	$150,000	$200,000
$1,500,000	$75,000	$150,000	$225,000	$300,000

Alternatives to using down payment gift funds

If gift funds aren’t an option or don’t cover the full amount you need, there are other ways to secure your down payment:

• Personal savings: Building up your savings over time is the most straightforward way to cover a down payment.
• Down payment assistance programs: Many state and local governments offer assistance programs for first-time homebuyers. These may provide grants or low-interest loans to help cover the cost.
• 401(k) or retirement loan: Some buyers use funds from their retirement accounts to cover down payments. Be cautious, though, as this could affect your future financial security.
• Sale of assets: Selling items like a car, collectibles, or investments can help raise funds for a down payment.

What donors should know

On the flip side, if you’re thinking about giving gift money to help someone buy a home, there are a few things you’ll want to know. Getting the details right can make everything go more smoothly for you and the buyer. Here are some simple tips donors should keep in mind before sending the gift:

• Select a gifting method: Decide whether to transfer the gift directly to the recipient or the escrow account handling the home purchase. Escrow accounts can provide added documentation for lenders.
• Sign a gift letter: Donors must sign a gift letter that certifies the funds are a gift, not a loan. This is required by most lenders.
• May need to report the gift on your taxes: In 2025, a donor can gift up to $19,000 ($38,000 for a married couple) to each recipient without incurring a gift tax liability. Larger amounts may need to be reported to the IRS and could trigger a gift tax.
• Keep documentation: To avoid any issues with the lender or the IRS, donors should keep clear records of the transfer, including receipts, bank statements, and a copy of the gift letter.

Get started with a top agent today

Navigating the homebuying process, including managing down payment gift funds, can be complex. A top real estate agent can provide valuable insights, guide you through the paperwork, and ensure you’re meeting all lender requirements. Whether you’re buying your first home or making a move, having expert advice on your side makes a big difference.

Ready to get started? HomeLight’s free Agent Match platform can connect you with a top agent who understands your unique needs. We analyze over 27 million transactions and thousands of reviews to find the right expert to help you complete your homebuying journey.

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