Buying a home comes with plenty of upfront costs—from the down payment to closing costs and prepaid expenses. For some buyers, help from a family member or another eligible donor can make homeownership more achievable.
Gift funds can be used toward certain homebuying expenses, but there are guidelines that need to be followed. Here’s what buyers should know before accepting financial help.
What Are Gift Funds?
Gift funds are money given to a homebuyer by an acceptable donor to help with the purchase of a home. Unlike a loan, gift funds do not need to be repaid.
Depending on the loan program and the borrower’s situation, gift funds may be used toward the down payment, closing costs, or other allowable expenses.
Who Can Give Gift Funds?
Not just anyone can provide gift funds. The acceptable donor depends on the loan program, but commonly includes family members, such as parents, grandparents, siblings, children, or other relatives.
Some loan programs may also allow gifts from other eligible individuals or organizations.
The key is that the donor must meet the applicable loan program requirements.
Gift Funds Need to Be Documented
Even though it’s a gift, the lender still needs to verify where the money came from and confirm that it doesn’t need to be repaid.
Typically, this involves a gift letter that identifies:
- The donor and recipient
- The donor’s relationship to the borrower
- The amount of the gift
- The property being purchased
- A statement confirming that repayment is not required
The lender may also need documentation showing the donor had the funds available and evidence of the transfer into the borrower’s account or directly to the closing agent.
Can Gift Funds Cover the Entire Down Payment?
Sometimes, yes! The amount of gift funds a buyer can use depends on the loan program, occupancy, property type, and other factors.
For certain transactions, a buyer may be able to use gift funds for all or a significant portion of their required funds. Other scenarios may require the borrower to contribute some of their own money.
This is one reason it’s important to discuss the source of your funds with your lender early in the process.
Don’t Move the Money Without Talking to Your Lender
If you’re receiving gift funds, don’t simply deposit the money into your account without letting your lender know first.
Large deposits can require additional documentation during underwriting. Your lender may be able to recommend the cleanest way to transfer the funds and what documentation will be needed.
Keeping a clear paper trail can help prevent unnecessary delays.
Gift Funds Can’t Be a Secret Loan
Gift funds must actually be a gift.
If the donor expects the money to be repaid, it generally cannot be treated as gift funds. Misrepresenting borrowed money as a gift can create serious problems during the mortgage process.
When in doubt, tell your lender exactly where the money is coming from and how it is being provided.
Which Loan Programs Allow Gift Funds?
Gift funds may be permitted with several common mortgage programs, including conventional, FHA, VA, and USDA loans, although the specific requirements vary.
The rules can differ based on factors such as the relationship between the donor and borrower, the amount of the gift, the borrower’s contribution, and the type of property.
The Bottom Line
If a family member or other eligible donor wants to help you buy a home, gift funds could make a big difference—but documentation matters.
Before accepting or transferring gifted money, talk with your lender. Understanding the requirements upfront can help keep your loan on track and avoid surprises later.
Thinking about buying a home and wondering whether gift funds could work for you? We’re happy to help you understand your options.