Purchase Tips · July 21, 2025
Gift Funds for Down Payment: Rules, Documentation, and Tax Implications
Receiving money from family for your down payment is allowed on most loan programs — but it must be properly documented. Here is the complete guide to using gift funds.
Many first-time buyers receive financial help from family for their down payment. Most loan programs allow this — but the documentation requirements are specific.
Which Programs Allow Gift Funds
FHA: Gift funds allowed from family members (parents, siblings, grandparents, spouse, domestic partners). The entire down payment can be a gift. Cannot come from interested parties (seller, agent, builder).
Conventional: Gift funds allowed for primary residences and second homes. For investment properties, gifts are not allowed — must be your own funds. If you put less than 20% down, the entire amount can be a gift. With 20% or more down, gifts are also permitted.
VA: Gift funds allowed. No restrictions on gifting the entire amount.
USDA: Gift funds allowed from family members.
What Documentation Is Required
Gift letter: Written and signed by the donor stating: the amount of the gift, the donor's name, address, phone, and relationship to the borrower, that the gift is not a loan and no repayment is required, and the address of the property being purchased.
Bank statements from donor: Evidence that the donor had the funds (typically 2-3 months of statements from the donor's account).
Transfer documentation: Evidence the funds transferred from donor to borrower — wire confirmation, bank transfer record, or cashier's check copy.
The Unsecured Loan Problem
A gift is not a gift if it must be repaid. If your family member expects repayment, it is a loan — and a loan that is not disclosed to the lender is a material misrepresentation. Never disguise a loan as a gift.
Large Gifts and Tax Implications
For 2025, the annual gift tax exclusion is $18,000 per donor per recipient. Gifts above this amount may require the donor to file a gift tax return (though gift tax is rarely actually owed given the lifetime exemption). Consult a tax advisor for large gifts.
HMS helps borrowers properly document gift funds. Call 309-222-8286.