Gift Funds for a Down Payment: Who Can Give, the Gift Letter and the Paper Trail

Say your parents want to help with your first house. They write a check, you deposit it, and you feel ready. Then the loan file opens and the underwriter wants to know where that money came from, who sent it, whether you have to pay it back, and how it got from their account to yours.

None of that is a sign of trouble. It's the standard treatment for gift money on almost every loan program, and it's manageable when the paperwork is lined up before the money moves. Most of the gift problems I see in a file come from the order things happened in, not from the gift itself.

Here's how the rules work, program by program, and what to do before anyone writes a check.

Key takeaways

• A gift is money given with no expectation of repayment, and every major loan program wants that stated in writing in a signed gift letter.
• Who can give matters. Fannie Mae limits gifts to relatives and people with a family-like relationship, and bars anyone with an interest in the sale, like the builder or the real estate agent.
• The lender has to trace the money from the donor's account to yours or to escrow. Cash handed over in an envelope is the hardest gift to use.
• Fannie Mae doesn't allow gift funds on an investment property. Gifts are for a primary residence or a second home.
• On some property types and smaller down payments, Fannie Mae requires part of the money to come from your own funds before gift money can cover the rest.
• Talk to your loan officer before the money moves. The cleanest gift files are the ones planned in advance.

What counts as a gift

The definitions line up across programs. HUD's handbook for FHA loans describes a gift as a contribution of cash or equity with no expectation of repayment. Fannie Mae uses the same idea for conventional loans.

The part that trips people up is the "no repayment" piece. If your brother is lending you the money and you plan to pay him back, it isn't a gift, and calling it one on a signed letter is a misstatement on your loan application. A real loan from a relative is a debt. It has to be disclosed, and the payment counts against your debt-to-income ratio.

So the first question is simple: does the person giving you the money expect it back? If the answer is no, you have a gift. If it's "eventually, when you can," talk to your loan officer before you sign anything.

Who is allowed to give you money

This is where programs differ, and it's worth knowing which one you're using.

Conventional loans (Fannie Mae). Under Fannie Mae's Selling Guide, as published in 2026, an acceptable donor is a relative (a spouse, child or other dependent, or anyone related by blood, marriage, adoption or legal guardianship) or a non-relative with a family-like relationship: a domestic partner, a fiancé or fiancée, a former relative, or someone with a long-standing familial or mentoring relationship with you.

Fannie also says who can't give. A donor who is, or is affiliated with, the builder, the developer, the real estate agent or any other interested party to the transaction is out. A seller can be a donor only when the seller isn't tied to another interested party, which is how a gift of equity works when a parent sells a house to a child.

FHA loans. HUD's handbook allows a somewhat wider list, including family members, a close friend with a clearly defined and documented interest in you, and charitable organizations, among others. That "close friend" category is useful, and it's also the one that draws the most scrutiny. Expect the lender to ask how long you've known each other and why this person is helping.

VA and USDA loans have their own gift rules too. If you're using either one, ask your loan officer for that program's version before the money moves.

The gift letter

Every program wants a signed letter. Fannie Mae's list of what it has to include is a good checklist for any loan:

• The donor's signature
• The exact dollar amount of the gift, or the maximum amount
• A statement from the donor that no repayment is expected
• The donor's name, address and telephone number
• The donor's relationship to you

HUD's version for FHA asks for the same core facts and wants the letter signed and dated by both the donor and the borrower.

First, get the amount right. If the letter says one figure and the deposit shows another, the file stops while someone reconciles the difference. Fannie notes that when the gift received differs from the amount used in its automated underwriting, the lender may have to resubmit the file. Second, use the lender's form. Most lenders have one, and a homemade letter missing a single item gets sent back.

Showing the money moved

This is the step people don't expect. The letter says the money is a gift. The bank records prove it exists and show the path it took.

Fannie Mae lets the lender document the gift either sitting in the donor's account or already transferred into yours. The acceptable evidence includes:

• A copy of the donor's check and your deposit slip
• The donor's withdrawal slip and your deposit slip
• A record of an electronic transfer from the donor to you or to the closing agent
• A copy of the donor's check made out to the closing agent
• A settlement statement showing the closing agent received the donor's check

If the gift goes straight to escrow at closing instead of through your account, Fannie wants proof the donor sent it by wire, certified check, cashier's check or another official check.

What doesn't work well is cash. HUD's handbook says cash on hand isn't an acceptable source of donor gift funds for FHA. A stack of bills from a relative's safe, deposited into your account, leaves nothing for the underwriter to trace. Keep the money in the banking system from start to finish.

Why the timing matters

Here's a hypothetical that shows why. Say your aunt wires you a gift in March, before you've talked to a lender. By the time you apply in May, that deposit sits on the bank statements the underwriter will review.

Fannie Mae's rule on deposits, in the Selling Guide version current in 2026, defines a large deposit on a purchase as any single deposit over half of your total monthly qualifying income. If you need that money to close, the lender has to document where it came from. A deposit that can't be sourced gets subtracted from your verified funds.

You can still use the money in that scenario. You'll just need the gift letter, your aunt's statement showing the wire going out, and yours showing it coming in. That's why we ask about gift money at the very first conversation. If we know a gift is coming, we tell the donor exactly what to send and how, and the documentation is built before the deposit ever shows up on a statement.

Moving money around during the loan is the other common snag. A gift split into several smaller transfers, routed through a third person's account, or moved between your own accounts can turn one clean paper trail into five questions. Pick one account, one transfer method, and leave it alone until closing.

Limits on how gift money can be used

Fannie Mae allows gifts for a principal residence or a second home, covering all or part of the down payment, closing costs or reserves. It doesn't allow gifts on an investment property.

There's also a minimum contribution rule. On a one-unit primary residence, Fannie lets the whole down payment come from a gift. On a two- to four-unit primary residence or a second home with a smaller down payment, Fannie requires part of the money to come from the borrower's own funds first, and gift money can cover the rest. One exception is useful for families who already share a home: Fannie treats a gift from a donor who has lived with you for the past 12 months, and who will live in the new home with you, as your own funds.

A gift of equity has one more restriction. Fannie says it can go toward the down payment and closing costs, but not toward reserves.

Common questions

Does the person giving the gift have to show their bank statements?

Often, yes. The lender has to show the money came from the donor. That usually means the donor's statement showing the withdrawal or the wire, alongside your deposit. On some files, the gift is documented in the donor's account before it moves. Your loan officer will tell you which version your file needs.

Can a gift cover my closing costs and not just the down payment?

Under Fannie Mae's rules, a gift can go toward the down payment, closing costs or reserves on a primary residence or second home, subject to the minimum contribution rule for certain property types. A gift of equity can't be used for reserves.

Does the donor owe gift tax?

The gift letter is a lending document, not a tax filing. Whether a donor has a federal gift tax reporting obligation depends on the amount and the donor's own situation. That's a question for the donor's tax professional.

What if the gift arrives after I've applied?

That's often the cleanest version, as long as it's planned. Tell your loan officer the amount and the donor before it's sent, have the donor sign the letter, and send the money by a traceable method to your account or straight to escrow.

Planning a gift the right way

A gift from family is one of the most common ways people get into a first home, and the rules are manageable once you know them. The work is all in the sequence: talk to your loan officer, get the letter signed, then move the money by wire or check through one account.

If someone in your family wants to help you buy, read how our conventional and FHA programs work, or contact us before the money moves, and we'll tell you exactly what your program needs.