Can I Use Gift Funds for a Down Payment on a Conventional Loan?
Having family help with your down payment is allowed on conventional loans — but the rules depend on who is giving the gift and what type of property you are buying. Here is what you need to know.
Gift funds for a primary residence
On a one-unit primary residence, Fannie Mae guidelines allow the entire down payment and closing costs to come from gift funds from an immediate family member. You are not required to contribute any of your own money when the LTV is at or below 80%, or when meeting other eligible program requirements. For primary residences with 2–4 units, at least 5% of the down payment must come from the borrower’s own funds.
Gift funds for a second home
Gift funds are permitted for second home purchases, but the borrower must contribute at least 5% of the down payment from their own funds. The remaining amount can be gifted.
Gift funds for investment properties
Gift funds are not permitted for investment property purchases. All down payment and closing cost funds must come from the borrower’s own eligible assets.
Who can give a gift?
Acceptable gift donors include: spouse, child, parent, grandparent, sibling, aunt or uncle, domestic partner, and fiancé/fiancée. In some cases employer assistance programs and approved nonprofits may also provide gift-like assistance. The gift must be a true gift — it cannot be a loan requiring repayment.
How are gift funds documented?
The lender requires a signed gift letter from the donor confirming the amount, the relationship to the borrower, and a statement that no repayment is expected. Bank statements showing the transfer of funds may also be required. Lenders will verify that funds have been received and are available for closing.
Gift of equity
Fannie Mae also allows a gift of equity when a family member sells you a property below market value — the difference counts as a gift toward the down payment. Gifts of equity are permitted for owner-occupied and second home purchases. They are not permitted for investment properties.
The paper trail, step by step
- Confirm the donor is eligible and the property type allows gifts.
- Sign the gift letter. It should name the donor, state the relationship and amount, give the property address if known, and say the money does not have to be repaid.
- Transfer the funds in a traceable way. A bank transfer or wire leaves a record on both sides.
- Show the deposit. The lender will want a statement showing the funds arrived, or a wire confirmation if they go straight to escrow.
- Keep the letter and statements together so you can answer underwriting questions quickly.
A worked example (illustrative example, not a quote)
A buyer purchases a $700,000 one-unit primary residence with 5% down. The down payment is $35,000, and the loan is $665,000. Closing costs are estimated at 3%, or $21,000. A parent gifts $35,000 for the down payment, and the buyer pays closing costs from savings. Underwriting would see one gift letter for $35,000 and a matching deposit or wire. If the parent also covered the $21,000, the letter would list the full $56,000, assuming the program permits an all-gift structure.
Common mistakes
- Handing over cash that the buyer deposits later. Cash has no paper trail before the deposit.
- Calling a loan a gift. If any repayment is expected, it must be disclosed as a liability.
- Waiting until the week of closing to move the money, which leaves no time to answer questions.
- Using a donor who is not on the eligible list, such as a friend or colleague, without checking first.
Frequently asked questions
Can gift funds be used with a 3% down program?
On a one-unit primary residence, the entire down payment can come from a gift, but each program has its own conditions. We confirm this against the specific program you are considering.
Does the donor need to show their own bank statements?
Sometimes. If the transfer is clear on your statement, the donor’s records may not be needed. If funds come in a way that is hard to trace, the lender may ask for the donor’s side.
Are gifts taxable?
Gift tax rules can apply to larger gifts and are the donor’s responsibility. Consult a tax professional about the donor’s situation.
Related guides
- Down payment requirements by property
- HomeReady and 3% down
- What the seller can contribute
- Saving for a down payment and closing costs
Key takeaways
- One-unit primary residence: entire down payment can come from family gift funds.
- 2–4 unit primary or second home: borrower must contribute at least 5% from own funds.
- Investment properties: gift funds are not permitted.
- Gifts must be true gifts from eligible donors — documented as non-repayable.
- Gift of equity allowed on primary residences and second homes; not on investment properties.
- Large unexplained deposits are flagged — document gift fund transfers well in advance.
- The gift letter must state amount, relationship, and that no repayment is expected.
- Deposits of cash into your account are hard to document; use traceable transfers instead.
- A donor can wire gift funds directly to escrow with matching paperwork.
Ready to explore your conventional loan options? Lendia can walk you through what you qualify for and find the right program for your goals.