Someone has offered to help with your down payment. Before you accept the money, there is a sequence that matters: find out whether your loan program accepts that specific person as a donor, then move the funds in a way the lender can trace. Get either step wrong and the gift becomes a problem rather than a solution, not because the money isn’t real, but because an underwriter cannot verify it is a gift rather than a loan.

The distinction underwriters care about is narrow and absolute. A gift requires no repayment. A personal loan from a family member is debt, and debt changes your qualifying ratios. Every rule below exists to establish which one you actually received.

Gift Fund Rules Conventional Loans:

Who Can Give:

Fannie Mae’s Selling Guide section B3-4.3-04 governs personal gifts, and its donor list is broader than most buyers expect.

Relatives qualify straightforwardly — a spouse, child, or other dependent, plus anyone related by blood, marriage, adoption, or legal guardianship. That covers parents, grandparents, siblings, aunts, uncles, and in-laws.

Non-relatives who share a familial relationship also qualify, and this is where the guideline does real work. The category includes a domestic partner or the partner’s relative, an individual engaged to marry the borrower, a former relative, and, notably — “an individual with a long-standing familial-like or mentorship relationship with the borrower.”

That last phrase is the one worth knowing. A godparent, a former foster parent, a long-time mentor, a stepparent whose marriage ended years ago: each may qualify under conventional rules even with no legal relationship to you. The relationship has to be documented and genuine, and your lender will ask you to describe it, but the category exists.

For the down payment minimums these gifts apply against, see our guide to Fannie Mae down payment requirements.

Gift Fund Rules FHA Loans:

Who Can Give:

FHA’s donor list under HUD Handbook 4000.1 overlaps with conventional rules but extends in a direction conventional lending does not go:

  • Family members
  • The borrower’s employer or labor union
  • A close friend with a clearly defined and documented interest in the borrower
  • A charitable or non-profit organization
  • A government agency providing down payment assistance

The close-friend provision is the practical difference between the two programs. Conventional underwriting asks whether your relationship resembles family. FHA asks whether the friendship is documented and the interest in your situation is clear. A longtime friend who does not fit any familial category may be an acceptable FHA donor and an unacceptable conventional one — which can decide your program choice before anything else does.

Employer and labor union gifts are likewise FHA-specific territory, and worth asking about if your employer offers any form of housing assistance. Our FHA loan requirements guide covers the program’s broader standards.

Who Can Never Give

Both programs exclude interested parties to the transaction. Fannie’s language states that the donor “may not be, or have any affiliation with, the builder, the developer, the real estate agent,” or any other party with a financial interest in the sale. FHA adds the closing agent and the attorney, along with acquaintances whose relationship cannot be documented.

The reasoning is straightforward: a party who profits from the sale closing has an incentive to inflate the price and return part of it as a “gift,” which conceals the true transaction value from the lender.

Two exceptions are worth knowing. Fannie permits a gift from a seller who is also an acceptable donor — a parent selling you their home, for instance — provided that seller is not affiliated with any other interested party. And a gift of equity donor is not treated as an interested party, which is what makes the structure below possible.

Separately, interested parties may contribute toward your costs under FHA rules — up to 6% of the sales price — but only toward closing costs, never the down payment. That is a seller concession, not a gift, and it is governed by different limits.

How Much Can Come From a Gift

This is where buyers are most often misinformed, because the answer depends on occupancy, unit count, and loan-to-value rather than on any single rule.

Under conventional guidelines:

  • One- to four-unit primary residence or second home at 80% LTV or below — no minimum borrower contribution. Gifts may fund the entire transaction.
  • Two- to four-unit primary residence above 80% LTV — 5% must come from your own funds; gifts may cover the remainder of the down payment, closing costs, and reserves.
  • Second home above 80% LTV — 5% from your own funds.
  • One-unit primary residence above 80% LTV — generally 5% from your own funds, except under HomeReady, which requires no minimum borrower contribution.
  • Investment property — gift funds are not permitted at all.

That HomeReady exception matters for first-time buyers specifically. A borrower putting 3% down on a single-unit primary residence under HomeReady may fund the entire down payment with a gift, where the same borrower on a standard conventional loan would owe 5% from their own resources.

One further provision is easy to miss: a gift from a donor who has lived with you for the past 12 months is treated as your own funds, satisfying a minimum contribution requirement, provided you will both occupy the home as a principal residence.

FHA takes a simpler position. With a 580 or higher score and 3.5% down, the entire down payment may come from gift funds, and gift funds may also cover some or all closing costs.

The Gift Letter

Fannie requires the letter to:

  • Specify the actual or maximum dollar amount of the gift
  • Include the donor’s statement that no repayment is expected
  • Indicate the donor’s name, address, telephone number, and relationship to the borrower

If the gift comes from a trust or estate, the donor signs and the letter names the trust or estate account.

FHA requires the same core elements and adds two practical differences: the borrower signs the letter as well, and lenders typically expect the letter to state the source of funds including the account, the gift’s purpose, and that the donor acquires no ownership interest in the property.

Use your lender’s form rather than drafting your own. The elements are standardized, but the formatting is not, and a letter rejected for a missing field costs days you may not have.

The Paper Trail — Where These Deals Die

Donor eligibility rarely kills a file. Documentation does.

Fannie accepts any of the following to evidence the transfer:

  • A copy of the donor’s check and your deposit slip
  • A copy of the donor’s withdrawal slip and your deposit slip
  • Evidence of an electronic transfer from the donor’s account to yours or to the closing agent
  • A copy of the donor’s check made out to the closing agent
  • A settlement statement showing receipt of the donor’s check

If the funds have not transferred before settlement, the lender must document that the donor delivered them to the closing agent by electronic transfer, certified check, cashier’s check, or other official check.

Three rules govern all of it:

The amounts must match exactly. The donor’s withdrawal, the transfer, and your deposit should reconcile dollar for dollar. A round-number gift that arrives as an odd amount invites questions you will have to answer in writing.

Deposit the gift by itself. A gift combined with a paycheck and a tax refund in one deposit is a sourcing problem rather than a gift.

Avoid cash entirely. Cash has no origin a lender can verify, and FHA and USDA both reject cash on hand as a donor source. Payment apps occupy similar territory, a Venmo or Zelle transfer may be traceable in principle, but many lenders will not accept one, so confirm before the money moves rather than after.

FHA goes a step further than conventional here, requiring the donor’s withdrawal record alongside proof of your deposit. If the funds were not already verified in your account, FHA also expects an official check and a donor statement evidencing sufficient funds.

Gift of Equity: When No Money Moves

A gift of equity occurs when a family member sells you a home for less than its appraised value and gifts the difference. If a parent’s home appraises at $400,000 and they sell it to you for $340,000, the $60,000 spread functions as your down payment.

Nothing wires, which eliminates the sourcing problem entirely — there is no transfer to trace. In its place, the gift letter states the equity amount, and the credit appears on the Closing Disclosure. An appraisal becomes essential rather than routine, because the gift’s size is defined by the gap between appraised value and contract price.

FHA permits a gift of equity only between family members on a property sold family-to-family. Conventional rules are somewhat broader, and importantly, Fannie does not treat the equity donor as an interested party despite their being the seller.

Before You Accept the Money

Confirm donor eligibility first. The answer may decide between FHA and conventional, and that decision affects everything downstream.

Ask your lender for their gift letter form before the donor writes a check.

Move the funds once, cleanly, by check or wire. One transfer, matching amounts, deposited alone.

Keep the donor’s documentation. Their withdrawal record may be requested, particularly on FHA.

Consider whether a gift is the right instrument at all. If no eligible donor exists, down payment assistance programs and retirement account withdrawals occupy adjacent ground — covered in our guides to down payment assistance and grants and 401(k) rules for first-time buyers.

Frequently Asked Questions

Can my friend gift me money for a down payment?

It depends on your loan program, and this is one of the clearest differences between them. FHA accepts a close friend as a donor when the relationship and their interest in your situation are documented. Conventional guidelines are narrower — a friend qualifies only by fitting a familial category, such as a long-standing familial-like or mentorship relationship. If your intended donor is a friend rather than family, raise it with your loan officer before choosing a program.

Can gift funds cover my closing costs too, or only the down payment?

Both, under either program. FHA permits gift funds toward some or all closing costs in addition to the down payment. Conventional rules likewise allow gifts to cover closing costs and, where a minimum borrower contribution applies, reserves as well. What differs is the interested-party rule: a seller, builder, or agent may contribute toward closing costs within program limits, but never toward your down payment.

What happens if I already deposited the gift before telling my lender?

Usually nothing fatal, but it creates work. Your lender will source the deposit, which means producing the gift letter and documentation after the fact rather than alongside it. The difficulty depends on how the money arrived — a single traceable transfer deposited alone is straightforward, while a gift combined with other deposits, or one received in cash, may be unusable. Tell your loan officer immediately rather than waiting for underwriting to ask.

References

  1. Fannie Mae. (2026). Selling guide B3-4.3-04: Personal gifts. 
  2. U.S. Department of Housing and Urban Development. (2026). FHA single family housing policy handbook 4000.1. 
  3. Enact Mortgage Insurance. (2026). What are the requirements for borrowers to use personal gift funds? 
  4. Mortgage Research Center. (2026). FHA gift funds: Guidelines and eligible donors. 

This article reflects the author’s editorial analysis and is not individualized financial advice. Mortgage rates are subject to change. RefiGuide.org is an advertising marketplace, not a lender.