Gift funds for a down payment: who can give, how much, and the paper trail lenders need

How gift funds for a down payment work

A gift is money given with no expectation of repayment. That last part is the whole point. A loan from your parents is a debt, and it would have to be counted in your debt-to-income ratio. A gift is not, which is why the lender asks the donor to put it in writing.

There is generally no dollar cap on a gift from the lender's side. What the rules control is who can give, which properties qualify, and, on a few conventional loans, how much of the down payment has to be your own money. Gifts can usually go toward the down payment and closing costs. Under Fannie Mae's rules they can also count toward reserves, while USDA does not count gift funds as reserves.

Down payment gift rules by loan type

The four agency programs agree on the basics and differ on the donor list. This table summarizes the published agency rules. Individual lenders and down payment assistance programs can add their own requirements.

What goes in a gift letter for a mortgage

We supply the gift letter form, so nobody has to write one from scratch. The agencies require the same core items, and the donor signs it. FHA also requires the borrower's signature.

• The dollar amount of the gift
• A statement that no repayment is expected or required
• The donor's name, address, and telephone number
• The donor's relationship to the borrower
• Signatures and dates

The paper trail: seasoning and how to move the money

Underwriters review your recent bank statements, typically the last two months for a purchase, and they have to explain any large deposit. Fannie Mae defines a large deposit as a single deposit that exceeds 50% of your total monthly qualifying income. A gift almost always trips that line, so it has to be documented: where it came from, and that it arrived in your account or at the title company.

Money that has been sitting in your account longer than the statements we review is generally treated as yours, which people call seasoned funds. Do not try to engineer this at the last minute. A gift that is documented properly is simple. A mystery deposit is what causes trouble.

The clean way to move a gift: one transfer, by wire, check, or electronic transfer, from the donor's account straight to your account or directly to the closing agent. Keep the donor's withdrawal record and your deposit record. Avoid cash entirely, because cash deposits cannot be traced and usually cannot be used.

Gift of equity: buying from a family member

When a relative sells you a home for less than it is worth, the discount can be treated as a gift of equity and used as your down payment. If your parents' home in McHenry appraises at $300,000 and they sell it to you for $270,000, the $30,000 difference is a credit on the settlement statement, and no cash has to change hands.

Fannie Mae allows a gift of equity on a primary residence or second home, from a donor who meets the same relationship rules as a cash gift. It can cover the down payment and closing costs but cannot count as reserves, and it takes a signed gift letter plus a settlement statement showing the credit. FHA allows a gift of equity only between family members. Family sales have a few other wrinkles, so tell your loan officer at the start that you are buying from a relative.

Gift tax basics for 2026

A gift is not taxable income to the person receiving it. Any filing duty belongs to the donor. For 2026 the IRS annual exclusion is $19,000 per recipient, the same as 2025. A donor can give up to that amount to any number of people without filing anything. A married couple can each give, so two parents can give a child $38,000, and if the child is married they can give the same to the child's spouse.

A gift over the annual exclusion does not usually mean a tax bill. It means the donor files IRS Form 709, and the excess is applied against the donor's lifetime exemption, which is far larger than most families will ever use. Tax rules have exceptions, and neither Illinois nor Wisconsin lenders give tax advice, including us. Donors should confirm their situation with a tax professional before sending a large gift.

Mistakes that delay closings

Nearly every gift problem we see comes from one of these:

• Depositing cash. Untraceable money usually cannot be used at all.
• Moving the gift through several accounts, which means documenting every hop.
• A gift that is really a loan. If repayment is expected, it is a debt and must be disclosed.
• Waiting until the week of closing. Gift documents take time, and a wire sent late can miss the closing.
• A donor who will not share a bank statement. On FHA loans in particular, the donor's statement is part of the file, so ask them before you count on the money.
• A gift from someone with a stake in the sale, such as the seller or an agent.