Using Gift Funds for a Down Payment: What to Know

What Are Gift Funds for a Down Payment?

Gift funds for a down payment are monetary gifts from acceptable sources that you can use toward purchasing a home. The key characteristic that defines a gift is that you never have to repay the money. This distinguishes gift funds from loans, which must be repaid and would increase your debt-to-income ratio.

You can use gift funds with alternative mortgage loans and traditional mortgages alike, expanding your financing options. Different loan programs have varying policies about home down payment gifts:

• FHA loans: Allow buyers to use gift funds for the entire 3.5% minimum down payment. This makes FHA loans particularly attractive for first-time buyer programs where buyers may have limited savings.
• Conventional loans: May allow your entire down payment to come from gift funds if you’re buying a one-unit primary residence. For multi-unit or second homes, lenders may require that a portion of the funds come from your own savings.
• VA loans: Allow eligible military members and veterans to use gift funds for their entire down payment. Since VA loans offer zero-down options, gift funds can also cover closing costs and other expenses.
• USDA loans: Permit 100% of the down payment and closing costs to come from gift funds, though these loans already offer zero-down payment options for qualifying rural properties.

Who Can Gift Money for a Mortgage Down Payment?

Lenders maintain strict guidelines about who can gift money for a mortgage down payment. Acceptable donors typically include:

• Family members
• Your fiancé or fiancée
• Domestic partners
• Employers
• Close friends (with a documented relationship)
• Charitable organizations or government programs

Unacceptable sources for gift funds include:

• The property seller
• Real estate agents or brokers involved in your transaction
• Builders or developers selling you a new home
• Anyone else with a financial interest in the sale

You’ll need to provide a signed gift letter stating that repayment isn’t expected, along with documentation proving your relationship. The donor must also provide recent bank statements showing the funds were available and not borrowed.

Rules & Guidelines for Using Gift Funds

Each loan type has specific rules about gift funds.

• FHA loan: Allow 100% of your down payment and closing costs to come from approved gift sources, as long as the funds are properly documented.
• Conventional loan: Allow gift funds to cover the entire down payment and closing costs for one-unit primary residences. If you’re buying a multi-unit property or a second home, at least 5% of the down payment must come from your own funds.
• VA loan: Don’t require a down payment, but gift funds can be used to cover closing costs, prepaid expenses, or the VA funding fee.
• USDA loan: Already offer 100% financing, but gift funds can still be used for closing costs or prepaid expenses. Donors must meet standard relationship and documentation requirements similar to other loan types.

You should also understand the tax implications for your donor. In 2025, individuals can gift up to $19,000 per recipient ($38,000 for married couples) without triggering gift tax reporting. Amounts exceeding these limits count toward the donor’s $13.99 million lifetime exemption.

Additionally, every lender requires a gift letter signed by the donor. This letter becomes part of your mortgage file and confirms the funds are truly a gift rather than a loan.

The letter must include specific information, including:

• The donor’s name, address, and phone number
• Your relationship to the donor
• The exact dollar amount being gifted
• The property address
• A statement that no repayment is expected
• The donor’s signature and date

How to Document Gift Funds Properly

Required documentation when using gift money for a down payment includes:

• A signed gift letter: Your donor must sign a letter using your lender’s template. This letter states the money requires no repayment and includes all required information about the donor, the amount, and the property.
• Donor’s bank statements: Your lender needs to verify the donor actually has the funds available. If the donor recently received a large deposit, they’ll need to document its source.
• Transfer documentation: You must provide evidence showing the funds moved from the donor to you. This includes copies of cancelled checks, wire transfer receipts, or bank statements showing both the withdrawal from the donor’s account and the deposit into yours.

Ideally, receive and deposit gift funds as early as possible before your mortgage application. If the funds have been in your account for at least 60 days, they’re considered “seasoned,” which can simplify documentation.

Following these guidelines helps avoid red flags or delays during underwriting:

• Deposit gift funds as early as possible
• Never deposit cash gifts, as lenders cannot verify the source of cash deposits
• Avoid multiple transfers or moving money between various accounts
• Ensure the gift letter matches exactly with the actual transfer amount
• Keep all receipts, wire confirmations, and bank records
• Communicate with your lender and donor about documentation requirements
• Don’t mix gift funds with other large deposits in your account 

Common Mistakes to Avoid

Many homebuyers make preventable mistakes when using gift funds. These errors can delay your closing or even jeopardize your mortgage approval.

• Accepting gift funds without a proper gift letter: Your lender cannot accept gift funds without signed documentation from the donor. Verbal agreements or informal notes don’t satisfy lender requirements.
• Depositing large sums without documentation: You might receive gift money and deposit it without considering the paper trail. Large deposits trigger lender scrutiny during underwriting.
• Relying solely on gift funds when a personal contribution is required: Some buyers assume they can use gift funds for their entire down payment on any loan type. Verify your specific loan program requirements before making plans.

Benefits of Using Gift Funds for a Down Payment

 Gift funds offer significant advantages for homebuyers, particularly when budgeting for first-time buyers, such as:

• Helps first-time homebuyers close the affordability gap: Many first-time buyers earn sufficient income to afford monthly mortgage payments but struggle to accumulate enough savings for a down payment and closing costs. Gift funds bridge this gap.
• Reduces debt burden or need for secondary loans: Gift funds eliminate the need for personal loans or high-interest credit cards.
• Improves loan eligibility or interest rate: Gift funds can help you make a larger down payment than you could manage alone, which in turn can help you qualify for more loan types, better rates, and improved terms. 

Get Started on Your Mortgage Journey 

Gift funds offer a legitimate, documented way to bridge the gap between your savings and your down payment needs.

At Griffin Funding, we specialize in helping buyers use gift funds effectively while ensuring full compliance with lender requirements. Our experienced mortgage team understands the documentation requirements for FHA, conventional, VA, and USDA loans.

You can also track your home-buying progress using the Griffin Gold app, which provides personalized insights into your financial readiness and connects you with mortgage options suited to your situation.

Get started online or contact Griffin Funding today to discuss your home financing options and learn how we can help you use gift funds effectively.

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 24 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 12 years in business.