Yes. Gift funds are allowed for down payments on FHA, VA, and conventional loans. FHA is the most flexible, the entire down payment can be a gift from an eligible donor with no minimum contribution required from the borrower. Conventional loans have rules that vary by down payment amount. VA loans require no down payment at all, so gift funds can be used for closing costs. The key requirements across all programs are a signed gift letter, documentation of the donor's ability to give, and a traceable transfer from donor to borrower.
Who Can Give a Gift?
Eligible gift donors vary by program. FHA accepts gifts from family members (parents, siblings, grandparents, aunts/uncles, spouses, domestic partners), close friends with a documented relationship, and employers. Gifts from interested parties, the seller, real estate agent, or builder, are not allowed. Conventional loans have similar rules, generally limiting gifts to family members and domestic partners. The donor cannot have any expectation of repayment, if repayment is expected, it's a loan, not a gift, and must be treated as debt.
The Gift Letter Requirement
Every gift requires a signed gift letter that includes: the donor's name, address, and relationship to the borrower; the dollar amount of the gift; the address of the property being purchased; and a statement that no repayment is required or expected. The lender will also want to see the donor's bank statement showing the funds leaving their account and the borrower's bank statement showing them arriving. The paper trail, funds out of one account, into another, must be clean and traceable.
Conventional Loan Gift Rules by LTV
For conventional loans with 20% or more down, the entire down payment can be a gift. For conventional loans with less than 20% down (and thus PMI), Fannie Mae requires the borrower to contribute at least 5% from their own funds on primary residences, but this only applies to single-unit properties purchased as investment properties. For primary residence purchases, gifts can cover the full down payment at any LTV. The exact rules depend on occupancy type and unit count, Dan confirms the specifics for your scenario.
Large Deposits and Sourcing Requirements
If gift funds are deposited into your account more than 60 days before your loan application, they may be considered 'seasoned' funds and no gift letter is required. Lenders typically only require sourcing for large deposits that appear within the last 60-90 days of bank statements. If you're planning to use a gift, timing the transfer to happen early can simplify documentation, but this only applies to funds already in your account when you apply.
Gift funds are one of the most underutilized paths to homeownership. Parents helping a child buy their first home is extremely common and completely legitimate. The paperwork isn't complicated, it's a letter and a bank statement. Where I see borrowers get tripped up is when they receive the gift in cash or in a way that isn't traceable. Lenders cannot use funds that can't be sourced. If a family member is helping you, make sure the money moves through documented accounts.
Have a situation like this?
Call Dan at (661) 342-9381. He will review your specific situation in a free call.