In most cases, a borrower of a mortgage loan secured by a one-unit primary residence can use funds received as a personal gift from an acceptable donor. Gift funds may fund all or part of the down payment, closing costs, or financial reserves, subject to the minimum borrower contribution requirements(in some cases). Gifts are never allowed on an investment property. Gifts can be used for a second home or a 2-4 unit primary residence purchase with certain limitations. Here is a summary:
FHA Loans: 100% of your down payment and closing costs can come from a gift
VA Loans: 100% of your down payment and closing costs can come from a gift.
USDA Loans: 100% of your down payment and closing costs can come from a gift.
Conventional Loans: 100% of your down payment and closing costs can come from a gift if you are purchasing a primary single-family home.
Conventional Loans: If you are purchasing a second home or a 2-4 unit primary residence, 5% of the funds required must come from your own funds.
Investment Properties: Gifts are NOT ALLOWED.
Acceptable Donors
Conventional Loans: Usually allow gifts from family members, including parents, grand-parents, siblings, cousins, and in-laws. Also allowed are domestic partners, certain relatives of the domestic partner, an individual engaged to marry the borrower, former relative, or an individual with a long-standing familial-like or mentorship relationship with the borrower.
FHA Loans: Usually allow gifts from parents, grandparents, siblings, aunts, uncles, spouses, domestic partners, and step-family members. The FHA also allows gifts from cousins and close friends, provided you can clearly document a long-standing and well established relationship, proving the giver is a close friend with a defined interest in you. Gifts are allowed from employers, or charitable organizations.
VA and USDA Loans: Usually allow gift funds to cover closing costs (since down payments are typically not required).
Tax Consequences
No buyer tax: Borrowers never pay tax on any amount of received gift funds.
Annual exclusion for donors: Donors can give up to a set limit per person annually without reporting it to the IRS and do so with no tax implications. For 2026 this limit is $19,000.
Lifetime exemption for donors: The IRS dictates annual reporting limits. If the gift exceeds the annual exclusion, the donor needs to file a gift tax return to track the amount against their lifetime tax exemption. Gifts over the annual limit count against the giver’s lifetime exemption amount. In 2026, the federal lifetime gift and estate tax exemption is $15 million per individual (or $30 million for married couples).
Doubling/Splitting gifts: Married donors can each give you the $19,000 limit with no reporting requirements, which means that in total, your parents can give you $38,000 with no reporting requirements.
ALWAYS review and confirm your understanding of these tax consequences and how they apply you – this is a general overview and you should never take tax advice from anyone other than a tax advisor, CPA, tax attorney, etc.
Documentation Requirements
Lending guidelines require that the gift be documented with a gift letter signed by the donor and the recipient(s), stating that the money is a gift and does not need to be paid back. At CIMG, we will provide a gift letter template for you and your donor to complete and sign. Our gift letter states that the money is an irrevocable gift and there is no expectation of repayment.
Key points in the letter:
- The exact dollar amount of the gift.
- The donor’s name, address, and phone number.
- Your relationship to the donor (e.g., parent, fiancé).
- The address of the property you are purchasing.
*see the example gift letter at the bottom of this page
The Paper Trail
Lenders must verify the money is not an undisclosed loan and comply with anti-money laundering regulations, and so a clean paper trail must be provided to document and track the funds .
The very best and easiest approach is to provide the gift letter – and then, have the gift giver wire the gift amount directly to the closing attorney’s trust account in the week before closing. The lender and closing attorney will be able to match the source of and amount of the wire with the information in gift letter. Presto, that’s it.
BUT – if the donor actually writes you a check, there will be many more steps of documentation required:
- You will need to provide a copy of the check or wire receipt from the donor.
- DO NOT accept a gift of cash – no paper trail will be possible and so the funds won’t be allowed to be used.
- You will need to show a deposit slip showing you deposited the funds into your account.
- You will need to provide the donor’s bank statement showing that they had the funds available to give you, and also to show the funds leaving the donor’s account.
- You will need a bank statement or a transaction activity report showing that the funds have cleared and are now liquid in your account.
- You will need to have your bank write a certified bank check from your account. You will provide a copy of this check to your lender and give the original to your closing attorney.
- If you go this route, it can be time consuming so make sure you allow enough time to provide everything needed well before closing.
