Are you wondering how much your parents, relatives, and other people give you for a down payment?
A lender may accept cash gifts that cover 100% of the down payment. The amount they allow may depend on the mortgage type, loan amount, and the company’s standards. They may ask for a gift letter, proof of transaction, and relationship, and trace the transfer.
Aside from cash gifts, you may also apply to down payment assistance (DPA) programs to help you with the initial payment. So, you have two financial resources now to help you pay 3% to 20% of a home’s sale price upfront.
Cash gifts and down payment assistance (DPA) programs help you source up to $40,000 down payment for a $200,000 home. You don’t need to wait another few months or years to save for it.
The down payment plays an important role in homeownership. But it does not have to come from your own pockets. Read further and discover how to use gifts for a down payment on a mortgage.
On to using cash gifts from acceptable sources!
Express Takeaways
- A cash gift may cover the down payment, closing costs, and other fees in a mortgage.
- A cash gift may cover up to 100% required down payment by a mortgage lender from acceptable sources.
- There is tax due for cash gifts that exceed the yearly limits of the IRS.
What is a Cash Gift?
A separate article discussing what a cash gift is explains in-depth details. It includes information on cash gifts as a source of funds for a down payment, closing costs, and other fees.
How to Use Cash Gifts for a Down Payment?
The processes of using cash gifts for the following common mortgage types are as follows.
FHA, Conventional, and Loans backed by Fannie Mae and Freddie Mac
There are government-backed mortgages that need at least 3% down on a home. Lenders that offer these types may ask for a gift letter that contains the following.
- Donor’s full name, complete address, and telephone number
- Gift dollar amount
- Statement of the donor’s relationship with you and that they do not ask for a repayment.
Lenders allow the transfer of the cash gift on or before the closing. They verify and document the transfer by asking for proof. It may include withdrawal documents, bank statements, canceled checks, or wire transfers. So, lenders may not accept cash on hand.
How to Write a Gift Letter for a Mortgage?
In writing a gift letter for a mortgage, you must include the above three items. Both the donor and the borrower need to sign the gift letter. It is also the same with other formal documentation where you state dates.
Fannie Mae-backed loans also need the following if you pool the cash gift with your funds:
- Certification that the donor has lived with the borrower for the past 12 months. It must state that they will continue to do so in the new home.
- Documents to prove the history of the donor’s shared residence with the borrower. It may include a driver’s license, a bill, or a bank statement.
You may include proof of transfer.
What Documents Do Lenders Need When Writing a Gift Letter for a Mortgage?
Following Fannie Mae’s requirements, you may have to attach a copy of any of the following:
- The donor’s check and the borrower’s deposit slip,
- The donor’s withdrawal slip and the borrower’s deposit slip,
- Evidence of the electronic transfer of funds.
- The donor’s check to the closing agent.
- A settlement statement that shows the receipt of the donor’s check.
You may have to present any of the above on or before the closing.
VA and USDA loans
Veterans Affairs and USDA mortgage programs may not need a down payment. So, you may use the cash gift for closing costs instead. Proof of relationship with the donor and transfer is still required.
How Much Cash Gift is Acceptable?
See the table below to find out how much your parents and other acceptable sources can gift for a down payment.
| Mortgage Program | Allowed Percentage of Down payment to Cover | Smallest Down Payment Required |
| FHA Loan | 100% | 3.5% |
| VA Loan | 100% as long as the sale price does not exceed the value of the property. | No need for a down payment but gift funds may pay for the VA’s funding fee |
| USDA Loan | 100% | No need for a down payment but gift funds may pay for the closing costs or pre‐paids |
| Fannie Mae-backed loan | 100% for
| 3% for the HomeReady Mortgage |
| Freddie Mac-backed loan | 100% for mortgages secured by 1 to 4-unit primary residence | 3% for the HomePossible Mortgage |
| Conventional loan | Up to 100% depending on the lender | 5% – 20% |
The type of mortgage program also impacts the acceptable sources of cash gifts.
Who Are the Acceptable Sources for Cash Gifts for a Down Payment?
Almost all mortgage types accept the same set of acceptable sources for a cash gift. But, there are minor differences. So, you may want to consider what will you apply for before you source for down payment funds.
| Mortgage Program | Source of Cash Gift for a Down Payment | |
| Allowed | Not Allowed | |
| VA Loan | -The home seller -The lender -Other parties | -Down payment must come from the borrower’s own resources if the home sale price exceeds its value. |
| FHA Loan | A borrower’s: -Parents -Relatives -Employer -Labor Union -Close friend Other sources: -Charitable organization -A government agency | Anyone who may have interest in the sale such as: -The home seller -The real estate agent or broker -The builder -An associated entity |
| USDA Loan | -Any uninterested third party that meets the documentation requirements | |
| Fannie Mae-backed loan | Anyone related to the borrower by marriage, blood, or legal guardianship: -Parents -Spouse -Other dependents A person who shares a familial relationship with the borrower such as: -Domestic partner -Fiancee -Godparent | |
| Freddie Mac-backed loan | A ‘related person’ is the borrower’s: -Parents or guardian -Spouse, child, or a dependent -Fiancee or domestic partner An unrelated individual with a family-like relationship may also provide cash gifts. | |
| Conventional loan | Family members and friends. | |
Depending on the amount of a cash gift, an acceptable source or the borrower may have to pay gift tax.
What is a Gift Tax for a Down Payment on a Mortgage?
A gift tax is due if there is a transfer of money or property to another person without repayment. However, the IRS does not need you to report if the gift does not exceed their yearly limits. In 2023, donors do not need to pay gift tax if their donation does not exceed $17,000. Otherwise, they have to complete an IRS form and pay the necessary taxes.
Are there Alternatives to Cash Gifts?
The following options may help you pay for a down payment on a mortgage:
- Visit the website of a regional Federal Home Loan Bank. One may have available funds to give grants to homebuyers.
- Contact your local government for available assistance.
- Find a non-profit organization that the HUD approves.
You may also find all the available down payment assistance (DPA) programs on Homebuyer Wallet.
Conclusion
To use cash gifts for a down payment on a mortgage, you need to submit a gift letter. It must include the donor’s basic information and the gift’s dollar amount. It must also state the relationship with the borrower and the need for no repayment. A lender verifies the transfer of a cash gift, so you need to prepare proper documentation. It may include a bank statement, donor’s check, withdrawal slip, or wire transfer copy.
A cash gift may cover up to 100% of the down payment required by a mortgage lender from acceptable sources. But, there is a tax due on cash gifts that exceed the yearly limits of the IRS. Down payment assistance (DPA) programs are also available to help pay a percentage of a home’s sale price upfront.
Article Sources
Homebuyer Wallet requires its writers to get information from original and reliable sources. Please see our editorial policy to learn more about our standards for producing factual information and content.
- Consumer Financial Protection Bureau, “Where can I get money for a down payment on a home mortgage?, https://www.consumerfinance.gov/ask-cfpb/where-can-i-get-money-for-a-down-payment-on-a-home-mortgage-en-123/”
- U.S. Department of Housing and Urban Development, “Section B. Acceptable Sources of Borrower Funds, https://www.hud.gov/sites/documents/4155-1_5_SECB.PDF”
- U.S. Department of Housing and Urban Development, “Chapter 4 Credit Underwriting, https://www.benefits.va.gov/WARMS/docs/admin26/m26-07/Chapter_4_Credit_Underwriting.pdf”
- U.S. Department of Veterans Affairs, “Chapter 8. Borrower Fees and Charges and the VA
Funding Fee, https://www.benefits.va.gov/WARMS/docs/admin26/m26-07/Chapter_8_Borrower_Fees_and_Charges_and_the_VA_Funding_Fee.pdf”
- U.S. Department of Agriculture Rural Department, “HB‐1‐3555 Chapter 9 Revision Overview SFH Guaranteed Loan Program, https://www.rd.usda.gov/files/RD-SFH-HB9RevisionNotes.pdf”
- U.S. Department of Agriculture Rural Department, “FAQ Frequently Asked Questions, https://www.rd.usda.gov/sites/default/files/rd-sfh-faqloanorigination.pdf”
- FHA, “FHA Down Payment and Gift Rules Still Apply, https://www.fha.com/fha_article?id=441”
- US Bank, “Conventional loans: Our lowest fixed mortgage rates, https://www.usbank.com/home-loans/mortgage/conventional-fixed-rate-mortgages.html”
- US Bank, “Down payment assistance programs, https://www.usbank.com/home-loans/mortgage/first-time-home-buyers/down-payment-assistance-programs.html”
- Fannie Mae, “HomeReady Mortgage, https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage”
- Fannie Mae, “B3-4.3-04, Personal Gifts (12/14/2022), https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-4-Asset-Assessment/Section-B3-4-3-Verification-of-Non-Depository-Assets/1032991211/B3-4-3-04-Personal-Gifts-12-14-2022.htm”
- Fannie Mae, “Selling Guide, https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-4-Asset-Assessment/1047030151/What-are-the-documentation-requirements-for-gift-funds.htm”
- Freddie Mac, “Asset eligibility and documentation requirements, https://guide.freddiemac.com/app/guide/section/5501.3”
- IRS, “Gift Tax, https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax”
- IRS, “Frequently Asked Questions on Gift Taxes, https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes”
- Federal Housing Finance Agency, “Affordable Housing Program, https://www.fhfa.gov/PolicyProgramsResearch/Programs/AffordableHousing/Pages/Affordable-Housing-Home-Loan-Banks.aspx”
- U.S. Department of Housing and Urban Development, “LOCAL HOMEBUYING PROGRAMS, https://www.hud.gov/buying/localbuying”
- U.S. Department of Housing and Urban Development, “HUD-APPROVED NONPROFIT ORGANIZATIONS AND GOVERNMENTAL ENTITIES, https://www.hud.gov/program_offices/housing/sfh/np”
