Using Gift Funds for a Mortgage: What You Need to Know

Buying a home is a major milestone, but coming up with the down payment and closing costs can be a big hurdle. The good news? Many buyers are eligible to use gift funds to help cover these costs. If you're receiving financial help from a family member, friend, or eligible donor, this guide will help you understand how gift funds work and how to use them properly during the mortgage process.

1. What Are Gift Funds?

Gift funds are monetary gifts given to a homebuyer to assist with the down payment, closing costs, or financial reserves required for loan approval. These funds are not loans and carry no expectation of repayment.

✔ The funds must come from an eligible donor (more on that below)

✔ The money must be properly documented to be accepted by lenders

✔ Gift funds are commonly used by first-time buyers or those with limited savings

2. Who Can Give Gift Funds?

Lender rules vary slightly depending on the loan program, but in general, acceptable donors include:

✅ Immediate family members (parents, grandparents, siblings, children, in-laws)

✅ Domestic partners or spouses

✅ Fiancés or fiancées

✅ Close friends (in some cases—depends on loan type)

Important: Most lenders don’t allow gifts from anyone who has a financial interest in the sale (e.g., the seller, real estate agent, builder).

3. How Different Loan Types Treat Gift Funds

Each mortgage program has its own guidelines for using gift funds:

FHA Loans

100% of the down payment can come from gift funds

The donor must sign a gift letter

Documentation of transfer (bank statement or wire) is required

Conventional Loans (Fannie Mae/Freddie Mac)

Gifts can be used for primary residences only

The entire down payment can be gifted for 1-unit homes

Gift letter and paper trail required

VA Loans

Typically, no down payment required, but gifts can be used for closing costs

The donor must meet the eligible relationship guidelines

Jumbo Loans

Requirements are stricter and vary by lender

Often require the borrower to contribute a portion from their own funds

4. What Is a Gift Letter?

A gift letter is a formal document signed by the donor that includes:

The donor’s name, address, and relationship to the borrower

The amount of the gift

A statement that the funds are a gift and do not need to be repaid

Donor’s signature and date

Your lender will provide a sample gift letter format or give you instructions.

It's critical that the gift funds are verifiable and traceable, cash deposits without documentation typically won’t be accepted.

5. How to Properly Transfer Gift Funds

To keep the process smooth and compliant, follow these steps:

Have the donor transfer the funds directly to your bank account via wire, check, or direct deposit

Document the transfer: Save copies of the check, deposit receipt, and bank statements (both donor’s and yours)

Submit everything to your lender along with the gift letter

Lenders will review this paper trail to confirm the funds are legitimate and not borrowed.

6. Common Mistakes to Avoid

❌ Depositing large amounts of cash without documentation

❌ Having the donor withdraw and give cash directly

❌ Failing to disclose the gift early in the process

❌ Using funds from ineligible sources (like sellers or agents)

Being transparent and proactive with your lender prevents delays or issues in underwriting.

7. Can Gift Funds Help Me Qualify?

In many cases, yes!

If your income and credit score are solid but your savings are tight, gift funds can:

Reduce your required down payment

Help cover closing costs

Strengthen your financial profile by lowering your DTI ratio

Gift funds can’t compensate for poor credit or unstable income, but they can absolutely be the key to unlocking homeownership sooner.

Final Thoughts

Gift funds are a powerful tool for homebuyers, especially first-timers. With the right documentation, lender guidance, and planning, they can help bridge the gap between renting and owning.

If you or someone you know is considering using gift funds for a home purchase, I can walk you through the process and help ensure everything is done by the book.

📲 Let’s talk and make sure your financing is airtight from start to finish.

Brandon Burgess | Mortgage Broker NMLS #371950 | Serving all of Texas