Mortgage Gifts: Rules, Gift Letters, and Tax Rules

A mortgage gift is money someone gives you toward a home purchase with no expectation of repayment, and on a conventional loan for a single-unit primary residence it can cover 100% of your down payment and closing costs.¹ The catch is that lenders treat gift funds very differently from your own savings. Who the donor is, how the money moves, what the letter says, and what your donor reports to the IRS all matter, and getting any of them wrong can hold up your closing or void the gift entirely.

Who Can Give You a Mortgage Gift

Lenders scrutinize the source because a gift from the wrong person can look like a disguised loan or an under-the-table kickback from someone with a stake in the sale.

Under Fannie Mae guidelines, an acceptable donor is a relative by blood, marriage, adoption, or legal guardianship, or a non-relative with what Fannie Mae calls a “familial relationship” with you. That second category covers a domestic partner or a domestic partner’s relative, a fiancé, a former relative, or someone with a long-standing familial or mentorship connection.¹ Freddie Mac uses similar language, requiring a “Related Person” or a trust or estate established by one, and also accepts wedding and graduation gifts from unrelated people if the funds are deposited within 90 days of the event.²

One rule cuts across every loan program: nobody with a financial stake in the sale can be the donor. The seller, real estate agent, builder, and anyone affiliated with them are all off limits.¹ USDA applies the same principle even to relatives: a family member who is also acting as your agent in the deal becomes an interested party and can’t double as the donor.³

Employer assistance sits in a separate bucket but works much like a gift. Your employer or an employer-affiliated credit union can provide a grant or forgivable loan for the down payment and closing costs on a one-unit primary residence, with no minimum contribution required from your own funds. The lender will need documentation showing this is an established company program, not a one-off arrangement, and the assistance can’t be used for a second home or investment property.⁴

How Much of the Down Payment Can Be a Gift

The share of your down payment that can come from a gift depends on the loan program, the property type, and how much you’re borrowing against the home’s value.

Conventional Loans

For a one-unit primary residence, Fannie Mae and Freddie Mac allow the entire down payment to be gifted regardless of loan-to-value ratio. Buying a two-to-four-unit primary residence and borrowing more than 80% of the value? You’ll need to put at least 5% down from your own funds before gift money can fill in the rest. The same 5% minimum applies to second homes when the loan exceeds 80% LTV; at 80% or below, a second-home buyer can gift the whole down payment. Investment properties can’t use gift funds at all.¹²

FHA Loans

FHA requires a minimum 3.5% down payment, and 100% of it can come from a gift. Eligible donors include family members, employers, labor unions, close friends with a clearly documented interest in the borrower, and charitable organizations. The interested-party ban still applies.

VA Loans

VA loans don’t require a down payment, but gift funds can still cover closing costs or reduce the loan amount. The VA doesn’t publish a rigid letter template, but lenders are expected to obtain one and document receipt of the funds to confirm you didn’t take out a separate loan to cover costs.⁵

USDA Loans

USDA guaranteed loans accept gift funds from any uninterested third party, which is broader than most other programs. Once received, the gift is treated as the borrower’s own funds, and excess amounts can even be returned to you at closing. The interested-party rule still cuts out anyone acting as agent, builder, or seller in the transaction.³

Gift of Equity When You Buy From Family

A gift of equity is different from a cash gift. It comes up when a family member sells you a home below market value, and the gap between the appraised value and the sale price is credited to you as equity, working like a built-in down payment.

Fannie Mae allows a gift of equity on primary residences and second homes, and it can cover all or part of the down payment and closing costs. Donor eligibility mirrors the rules for cash gifts, so the seller must be a relative or someone with a qualifying familial relationship. Because the donor is family, the seller isn’t treated as an interested party even though they sit on both sides of the deal.⁶

You’ll need a signed gift letter following the same requirements as a cash gift, a professional appraisal establishing fair market value, and the gift of equity shown on the settlement statement. The appraisal verifies the gap, and that gap becomes your equity credit.

What the Gift Letter Must Say

Every mortgage gift needs a letter, and lenders are specific about what belongs in it. Fannie Mae requires:

The exact dollar amount being given.
The date the funds were or will be transferred.
The donor’s full name, address, phone number, and relationship to you.
An explicit statement that no repayment is expected or required.

That last item isn’t a formality. Disguising a loan as a gift on a mortgage application is a federal crime. Under 18 U.S.C. § 1014, knowingly making a false statement to influence a mortgage lender carries penalties of up to $1,000,000 in fines, up to 30 years in prison, or both.⁷ If a relative lends you $40,000 and you both sign a letter calling it a gift, that’s fraud, and underwriters are trained to spot it.

Most lenders will hand you their template. Use it. Improvised letters missing a required element bounce back and delay closing.

How to Transfer and Document the Money

The lender has to trace the money from the donor’s account to the closing table, so the method of transfer matters almost as much as the letter.

A wire directly to the title or escrow company is the cleanest option, creating an instant record with source and destination on the receipt. If the donor writes a certified check, keep a copy of the check along with your deposit slip. HUD has historically required lenders to confirm that the funds behind a cashier’s check actually came from the donor’s account, so expect to provide a withdrawal slip showing the donor’s account number.⁸

The lender must also verify that the donor had the money to give without borrowing. That usually means the donor’s bank statement or a copy of the donor’s check paired with your deposit slip.¹ Redacted statements can be acceptable as long as the donor’s name and the relevant transaction remain visible.

Seasoned vs. Unseasoned Funds

Money that has been sitting in your account for at least 60 days before you apply is considered “seasoned,” and lenders typically won’t ask where it came from. A recent gift deposit is unseasoned and triggers full sourcing: the letter, the donor’s bank statement, and a paper trail connecting the money to the donor.⁹ Deposits that can’t be sourced won’t count toward your available assets.

Tax Consequences Fall on the Donor

You don’t owe income tax or gift tax on money you receive. Any tax obligations belong to the donor.¹⁰ For 2026, the math is:

Annual exclusion: each donor can give up to $19,000 per recipient with no filing required. A married couple can split the gift and give up to $38,000 to one recipient with no tax consequences.¹¹
Form 709: a donor who gives more than $19,000 to one person in a calendar year must file the gift tax return. Filing doesn’t necessarily mean tax is owed; it reports the excess against the lifetime exemption.¹⁰
Lifetime exemption: the basic exclusion amount for 2026 is $15,000,000 per individual, so most families helping with a down payment will never owe gift tax, but the reporting still matters.¹²

Couples electing to split a gift both file Form 709 even if only one spouse actually wrote the check.¹⁰

Mistakes That Stall Closings

Gift funds are one of the most common reasons underwriters send a loan back for more documentation. A few patterns come up over and over:

Depositing the gift before the letter is signed. The lender sees an unexplained large deposit and flags it. Coordinate the timing so the letter and the transfer happen together.
Cash gifts with no paper trail. HUD does allow “cash saved at home” as a fund source, but the borrower has to explain how the cash was accumulated and the lender has to judge whether that story fits the borrower’s income history. Wire or check the funds instead.¹³
Donor can’t show the source. If the donor’s bank statement shows they just received a large transfer themselves, the underwriter will trace that money too, looking for a hidden loan or an interested party laundering funds through the donor.
Wrong donor for the loan program. A close friend might qualify under Fannie Mae’s broad “familial relationship” but not under a stricter FHA or Freddie Mac scenario. Confirm donor eligibility with your lender before any money moves.

Once the letter, bank statements, and transfer records line up, the underwriter credits the funds toward your closing requirements and the loan moves to clear-to-close.

1
Fannie Mae. B3-4.3-04, Personal Gifts
2
Freddie Mac. Freddie Mac Guide Section 5501.4 – Other Sources of Funds
3
USDA. Single Family Housing Guaranteed Loan Program FAQ
4
Fannie Mae. B3-4.3-08, Employer Assistance
5
U.S. Department of Veterans Affairs. VA Credit Standards Course
6
Fannie Mae. B3-4.3-05, Gifts of Equity
7
Office of the Law Revision Counsel. 18 USC 1014 – Loan and Credit Applications Generally
8
U.S. Department of Housing and Urban Development. HUD HOC Reference Guide – Gift Funds
9
Experian. What Are Seasoned Funds for a Down Payment?
10
Internal Revenue Service. Instructions for Form 709
11
Internal Revenue Service. Frequently Asked Questions on Gift Taxes
12
Internal Revenue Service. What’s New – Estate and Gift Tax
13
U.S. Department of Housing and Urban Development. HUD 4155.1 – Chapter 5, Section B