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A Homebuyer’s Guide For Using Gift Funds

  • Financial Education, Home Mortgage
Brown box tied with a key on a house-shaped keychain in a satin red ribbon and bow.

The Gift That Keeps Giving

When you’re ready to buy a home, one of the biggest hurdles can be coming up with enough money for a down payment. While saving for a down payment is ideal, not everyone has the resources or means to do so. Fortunately, there’s a solution that many homebuyers may not be fully aware of: gift funds.

If you’re in the process of purchasing a home, here’s everything you need to know about using gift funds for your down payment.

Brown box tied with a key on a house-shaped keychain in a satin red ribbon and bow.

What Are Gift Funds?

Gift funds are monetary contributions that someone else provides to help cover the costs that come with buying a home. These funds can be used toward the down payment, closing costs, or other costs associated with the purchase. The idea is that you don’t have to pay this money back, making it a fantastic way to ease the financial burden of buying a home.

Generally, gift funds can come from anyone in your close network. However, lenders usually prefer that the gift come from close family members – parents, grandparents, siblings, and sometimes even aunts or uncles. In some cases, close friends may be able to gift money, but there are typically stricter rules set in place.

To ensure everything in the mortgage process goes smoothly, it’s important that the person providing the gift can demonstrate they they have the financial means to do so. Lenders will want to confirm that the gift is truly a gift, and not a loan in disguise.

What Loan Types Allow the Use of Gift Funds?

The good news is that most loan programs accept gift funds for down payments, although specific rules vary by loan type. Below are the main loan types where gift funds are typically allowed.

  • Conventional Loans
    Most conventional loans allow gift funds to cover part or all of your down payment. However, the lender will need documentation verifying the source of the gift and that the money does not need to be repaid. If you’re putting down less than 20%, your lender may also require private mortgage insurance (PMI).
  • FHA Loans
    The Federal Housing Administration (FHA) is more flexible with gift funds. FHA loans allow 100% of the down payment to come from gifts, which is an attractive option for first-time homebuyers. Similar to conventional loans, documentation proving the gift does not need to be repaid is required.
  • VA Loans
    Veterans Affairs (VA) loans also allow the use of gift funds for down payments, but since VA loans typically do not require a down payment, gift funds may be used toward closing costs or other fees. The source of the gift will need to be documented.
  • USDA Loans
    The U.S. Department of Agriculture (USDA) also permits the use of gift funds for the down payment and other eligible costs. Like FHA and VA loans, USDA loans have specific guidelines regarding who can provide the gift and the necessary documentation.
  • Jumbo Loans
    For jumbo loans – which are loans that exceed conventional loan limits – gift funds may also be allowed, but lenders may impose stricter conditions than on standard loans.

Are There Limits on Gift Amounts?

When it comes to using gift funds for your down payment, there are certain limits and rules that you should be aware of:

  • Loan Limits: While there’s generally no cap on how much someone can gift to you, the total gift amount cannot exceed the amount allowed for the specific loan program. For example, with FHA loans, all or part of your down payment can be gifted, but the total down payment still needs to meet the loan-to-value (LTV) ratio required by the program.
  • Gift Documentation: The gift must be properly documented. You will need to provide a gift letter that includes the donor’s name, address, relationship to you, the gift amount, and a statement that the funds are a gift, not a loan. Your donor may also need to provide bank statements or other evidence that they have the funds to give.
  • Lender-Specific Limits: Some lenders may place their own restrictions on how much gift money can be used in combination with certain types of loans. It’s always a good idea to check with your lender – or GRB Mortgage Originator – to ensure you’re in compliance with their specific requirements.
  • Tax Implications: In most cases, the person gifting the money may be subject to gift tax rules. However, the IRS allows individuals to gift up to $19,000 per person (limit for 2025) without triggering a gift tax. If the gift exceeds this threshold, the giver may need to file a gift tax return. Keep in mind that this is a concern for the donor, not the recipient, but it’s important to be aware of the implications for all parties involved.

Using gift funds for a down payment can be an excellent way to make homeownership more accessible, but navigating the rules and requirements can be tricky. If you’re considering using gift funds for your home purchase, don’t hesitate to reach out to our team, or speak with one of our experienced mortgage originators.

We’re here to help guide you through the process, answer any questions, and ensure that you’re fully informed about your options. Contact us today to learn more and get started on your journey to homeownership!

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