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You’re planning to use gift money to help buy a house. Nice! But before you cash the check, make sure you know the rules. Mortgage lenders have policies for gift money, including:
- Who can and can’t give gift money to a home buyer.
- Which costs it can be used for.
- How to document the gift (a mortgage gift letter).
The rules are different depending on the kind of loan you get. Whether you’re giving or receiving a gift, here’s what you need to know to stay in the clear.
🤓 Nerdy Tip
This article explains the most common ways to use cash gifts to buy a primary residence. For specific or unusual situations — like gifts of equity, or buying a second home — it’s best to consult your mortgage loan officer or a financial advisor. Why do lenders have rules about gift money?
When you apply for a mortgage, the lender needs to make sure you can pay it back. A large down payment shows you’re financially stable. If some of that money comes from somewhere other than your own savings, the lender needs to know it’s not a loan you’ll have to repay.
You can use gift money for numerous homebuying costs, including:
- Down payment.
- Cash reserves.
- Earnest money deposit.
- Closing costs and other fees.
Each type of home loan (such as conventional or government-backed loans) has its own rules about using gift money for each of those expenses. We’ll focus here on the rules for using gift money for down payments — often the biggest up-front cost for first-time buyers.
(You don’t need 20% down to buy a house, but you should contribute as much as you can comfortably afford. A larger down payment means smaller monthly payments.)
How to write a mortgage gift letter
If you’re using gift money to buy a house, you need to properly document where the money came from. The person or organization providing you with gift funds has to supply a gift letter for the lender. The letter should include the following information:
- Your name.
- The donor’s name, address and phone number.
- The donor’s relationship to you.
- The gift amount.
- A statement that you aren’t expected to pay back the gift.
- A statement that the donor has no interest in the sale of the property.
- The date that the funds were transferred.
- Signatures from you and the donor.
🤓 Nerdy Tip
It’s best to deposit the gift funds in your bank account at least two months before you plan to purchase a house. This shows lenders that the money is stable — or “seasoned” — and that it’s really a gift, not a last-minute loan. Who can gift money for a mortgage down payment?
In general, close family members are typically allowed to give you down payment money to help you buy your primary residence. Extended family and friends are allowed in many cases, too. The rules for personal gifts differ by loan type.
Gift money from people you know, like a check from your parents, is considered a personal gift. Grant money from organizations, like down payment assistance, works similarly. Either way, you’ll need documentation (like a gift letter) to show where the money is coming from and prove that you don’t have to pay it back.
Here’s what to expect for personal gifts.
Conventional loans (Fannie Mae and Freddie Mac)
With a conventional loan, your down payment can be as low as 3%. A personal gift can come from:
- A parent or guardian.
- A spouse, fiance or domestic partner.
- A child or other dependent.
- Anyone related to you by blood, marriage or adoption.
- Someone with close, family-like ties, like a godparent or former relative.
- A collection of individual gifts, like graduation or wedding gift money.
When using graduation or wedding gifts, the lender will need proof (such as your marriage license or diploma), and the money must be deposited within 90 days of the event. Conventional loans also allow grant funds, such as those from down payment assistance programs.
» MORE: Best conventional lenders
FHA loans
Backed by the Federal Housing Administration, FHA loans have down payment requirements as low as 3.5%. FHA loans define a gift as money you don’t have to pay back. It can come from:
- A family member.
- An employer or labor union.
- A close friend.
- Common sources of homeownership assistance, including charitable organizations, governments and public groups.
According to the FHA, “family members” include parents, grandparents, siblings, aunts and uncles; spouses and domestic partners; immediate in-laws; step siblings; foster parents and children; and adopted children.
» MORE: Best FHA lenders
VA and USDA loans
VA loans, backed by the Department of Veterans Affairs, and USDA loans, backed by the U.S. Department of Agriculture, are generally OK with any source of gift funds for a down payment — as long as they’re not given by someone with a financial interest in the transaction. Each of these government-backed loans allows for 100% financing with no down payment required.
Who isn’t allowed to give you gift money?
No matter what kind of loan you have, you generally can’t receive down payment gift money from anyone who would profit from your home purchase, such as the builder, developer, seller or real estate agent.
If a family member is involved in your transaction, ask your loan officer if they’re allowed to make a gift — rare circumstances might have exceptions.
One common workaround is closing cost assistance. You can negotiate for the seller to pay some or all of your closing costs, depending on state laws and the type of mortgage. This is most commonly seen in slow markets as a way to attract buyers.
Did you know...
According to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers, 25% of first-time buyers used a gift or loan from family or friends to fund their down payment. How much gift money can you apply toward a down payment?
The answer depends on what type of property you’re buying and which loan you’re using to fund it.
Primary residences
For a single-family primary residence, you can use gift money for your entire down payment, for all common loan types: conventional, FHA, USDA or VA. With a conventional loan, you can also use gift money to fund the full down payment of a live-in multifamily property (up to four units).
Second homes and investment properties
With a conventional loan: For second homes, you’ll need to put down at least 5% of your own money if making a down payment less than 20%. You can use gift money to cover the whole down payment if you’re putting down 20% or more. For investment properties, gift funds aren’t allowed.
Tax implications for gift funds
In most cases, the person receiving gift money doesn’t have to pay taxes on it. However, the person giving the money might have to file additional tax paperwork. The annual exclusion per individual recipient is $19,000 for 2025, so if your gift exceeds that, the donor will have to file a gift tax return. This gift will go against their lifetime exclusion — however, as this is currently set at $13.99 million for individuals or $27.98 million for married couples filing jointly, they’ll likely be a long way from triggering a tax penalty.
Should you use gift money to buy a house?
If you’re fortunate to receive it, gift money can be helpful. It reduces your loan amount and avoids added debt when buying a house. Just ensure the gift is well-documented for mortgage approval.
Sometimes, though, receiving a gift can come with a feeling of obligation that you “owe” the giver, even if you don’t have to pay them back. For example, maybe your parents offer you money for your down payment — but only if you buy a house they approve of, which limits your freedom to choose.
When someone offers you a financial gift, communicate clearly and set good boundaries. If you feel uneasy about the giver’s intentions or what’s expected of you, you don’t have to accept the gift.
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