Gift Money Can Meet Your Down Payment Needs

Saving for a down payment can be one of the biggest obstacles to homeownership — especially for first-time home buyers, who can’t use profits from a past home sale. In these cases, gift money or grants can be a great resource for reaching your minimum down payment.

According to the National Association of Realtors’ 2021 Home Buyers and Sellers Generational Trends Report, 10% of buyers used gift funds from friends or family for their down payments. This trend was most common among home buyers between the ages of 22 and 30, as 23% reported using gift money.

When you apply for a preapproval or a mortgage, you’ll likely be asked whether any of your homebuying funds will be coming from a gift. Here’s what you need to know to answer that question with confidence.

Where to get gift money

If you’re getting a conventional loan, any gift fund deposits in your account from the past two to three months can come only from an approved list of sources.

According to mortgage lender Fannie Mae, acceptable donors include close relatives and your spouse, fiancé or domestic partner.

“Most people are getting a gift from a relative,” says Matt Woods, CEO of SOLD.com, a real estate service platform for home sellers. Still, he has seen cases where buyers with conventional loans have run into problems because their down payment came from a source that didn’t meet their lender’s approval. “Every once in a while, that rears up and we have to say, uh-oh, you’re not actually allowed to accept a gift from just a friend.”

Loans guaranteed by a federal agency are much more lenient with gift money donor rules, as they allow for funds to come from just about anyone, including friends and extended family. These include loans backed by the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture.

You don’t need to have a wealthy family to apply gift money toward your down payment. For example, both conventional and government-backed loans also accept grants from your employer, church or labor union as gift money, as well as grants from nonprofits, tribal programs and public agencies.

If you’re interested in down payment assistance programs, you can contact your state’s housing finance agency or your local Department of Housing and Urban Development office. For instance, Nevada’s Home Is Possible program provides qualified recipients with up to 5% of their loan’s value for down payment or closing costs, while eligible borrowers in Virginia can get up to 2.5% of the purchase price of their new home through Virginia Housing’s Down Payment Assistance Grant.