What Is Gift Funds?

Gift funds are money given to you by a family member, employer, or other approved source to help cover your down payment or closing costs. Lenders require a written gift letter confirming the funds are a true gift with no obligation to repay.

On a $300,000 FHA purchase with 3.5% down, you need $10,500 at closing. If a parent gifts you that entire amount, you can buy with zero personal savings toward the down payment. Conventional loans allow 100% of the down payment to come from gifts if you put 20% or more down; with less than 20%, some of your own funds may be required depending on the program. The lender will verify the donor’s bank statements and trace the transfer to your account.

Key Facts

• Gift letter required: Must state donor name, relationship, amount, property address, and that no repayment is expected
• FHA rules: 100% of the down payment can come from gift funds from a family member
• Conventional rules: 100% gift funds allowed at 20%+ down; restrictions may apply below 20%
• Paper trail: Lender needs donor’s bank statement showing withdrawal and your statement showing deposit
• Eligible donors: Family members, domestic partners, fiancés; some programs allow employers or nonprofits
• Tax note: Gifts over $18,000 per donor per recipient (2024 limit) may require the donor to file IRS Form 709

Frequently Asked Questions

Can a friend give me gift funds for a mortgage?

It depends on the loan type. FHA and conventional loans generally limit gift donors to family members, domestic partners, or fiancés. Some down-payment assistance programs and grants through nonprofits can supplement if a friend wants to help indirectly.

Do gift funds affect my taxes?

The gift itself is not taxable income to you. However, the donor may need to file IRS Form 709 if the gift exceeds the annual exclusion amount ($18,000 per person in 2024). No gift tax is typically owed unless the donor has exceeded their lifetime exemption.