Remember circling your dream toys in the Sears catalog or making a mile-long birthday list for Grandma? Fast forward to adulthood, and the wishlist looks a little different. These days, the top item on every adult’s wishlist is simple: cold, hard cash. Why? Because adulting isn’t cheap, and you’re more than ready to hand your roommate a 60-day notice and grab a set of front door keys that are entirely your own.
Using gift funds to purchase your first home? Then you need our guide.
Who Can You Receive a Gift From?
The rules depend on the type of mortgage you’re applying for:
Conventional Loans (Fannie Mae & Freddie Mac)
It used to be strictly immediate family, but the rules have expanded. Acceptable donors now include:
- Family members: Spouses, parents, grandparents, siblings, aunts, uncles, nieces, nephews, and in-laws.
- Individuals with a proven familial relationship: Fiancés/fiancées, domestic partners, relatives of a domestic partner, godparents, and former relatives.
Note: The gift donor cannot be a party with a financial interest in the transaction (e.g., your real estate agent, the seller, or the builder).
FHA Loans
FHA loans offer even broader flexibility. You can accept gift funds from:
- Family members and extended family
- Close friends with a clearly documented, long-standing interest in your life
- Employers or labor unions
- Charitable organizations or non-profits
- Government agencies providing first-time homebuyer assistance
VA & USDA Loans
For VA and USDA loans, gifts are permitted from family members or non-relatives as long as there is a clear, non-commercial relationship and no conflict of interest.
Yeah, But What’s the Catch?
No major catch, just a few specific rules to keep in mind regarding minimum contributions:
- Primary Single-Family Homes (Conventional, FHA, VA): 100% of your down payment and closing costs can come entirely from a gift. Cue your happy dance!
- Multi-Unit Properties & Second Homes (Conventional): If you’re putting down less than 20% on a multi-unit primary home or a second home, you may be required to contribute at least 5% of the purchase price from your own personal funds before gift money can cover the rest.
- Credit Considerations: For FHA or VA loans, while 100% gift funding is allowed, borrowers with lower credit scores may occasionally be required by specific lenders to contribute a small portion of their own cash.
The Famous “Gift Letter”
Suppose Aunt Doris was feeling generous and wrote you a $10,000 check for your down payment. How do you apply that toward your home purchase?
You’ll need sweet Auntie to sign a simple Gift Letter provided by your lender. Mortgage underwriters require this to prove that the funds are a genuine gift—not a secret loan you’re expected to pay back after closing.
The gift letter must include:
- Donor’s full name, contact information, and address
- Their relationship to you
- The exact dollar amount and transfer date
- The property address you intend to purchase
- A explicit statement stating that repayment is neither expected nor required
Wedding Cash, Graduation Gifts, and Bank Statements
What if you just got married or graduated and received a series of smaller checks from friends and family?
When applying for a mortgage, your lender will ask for your last 60 days of bank statements. They don’t care about your daily coffee runs, but they do scrutinize unexplained large deposits to ensure you aren’t taking on undisclosed debt.
What counts as a “large deposit”?
- Conventional Loans: Any single deposit exceeding 50% of your total monthly qualifying income will require paper-trail documentation.
- FHA / USDA Loans: The threshold is stricter; lenders look into any deposit exceeding 1% of the purchase price or appraised value.
If you deposited dozens of $50 checks from wedding guests, you’re usually in the clear. But if Uncle Bob handed you a single $5,000 cash stack or check, be prepared to provide a gift letter and bank transfer records.
Pro Tip (“Seasoning” your funds): Want to avoid the gift documentation paperwork altogether? Have your donor transfer the money to your bank account at least 60 to 90 days before you apply for a pre-approval. Once funds sit in your account past two full statement cycles, they are considered “seasoned” and no longer require sourcing paperwork!
A Note on Gift Taxes
Make sure your generous donor understands IRS rules regarding gift funds:
- Annual Gift Tax Exclusion: Any individual can gift up to $19,000 per recipient per calendar year without having to file a gift tax return (IRS Form 709).
- Married Donors: If your parents are giving you a gift jointly, they can combine their exclusions to give up to $38,000 tax-free. If you’re buying with a partner, your parents could technically gift $19,000 to each of you (totaling $76,000) without triggering tax filings.
- Does the donor owe tax over $19,000? Not usually! Gifting more than $19,000 simply means the donor must report the excess on Form 709. It counts against their lifetime estate and gift tax exemption (which sits at $15 million per individual). Unless your benefactor is giving away millions in their lifetime, neither you nor the donor will owe out-of-pocket federal gift taxes.
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Howard Hanna Allen Tate Real Estate is the #1 real estate company in the Carolinas, with more than 80 offices and 2,000 agents serving communities across North and South Carolina and Georgia. As part of Howard Hanna Real Estate Services, the largest family-owned and operated real estate company in the United States, Howard Hanna Allen Tate offers a full suite of real estate services, including mortgage, insurance, title and relocation. For more information, visit www.howardhannatate.com.
