Rules for Using Gift Funds for a Down Payment on a House

FHA loans

FHA loans are mortgage loans that are backed by the Federal Housing Administration and must be issued by an FHA-approved lender. FHA lenders typically serve borrowers with low-to-moderate income levels.

With an FHA loan, you can use gift funds for the entire down payment, regardless of how much you’re putting down. The donor can be a family member, close friend, your employer, labor union, or charitable organization, and you’ll need a gift letter. The FHA also requires you to verify the transfer of funds into your account, typically through a bank statement.

VA loans

VA loans allow veterans and service members to use gift funds for a down payment, even though no down payment is usually required. The rules are flexible as long as the gift doesn’t come from someone with a financial interest in the sale (such as the seller or real estate agent). You’ll still need a gift letter to document the contribution.

Gift funds can also be used to pay VA funding fees or closing costs. Again, you will need documentation of the money transfer.

USDA loans

USDA loans, like VA loans, typically don’t require a down payment. However, if you decide to put money down or cover other closing costs, gift funds are permitted. Gifted money will not be permitted to count as qualifying funds for required financial reserves.

As with other loans, the funds must come from a family member or someone with a close relationship with you who doesn’t have an interest in the sale. A gift letter and documentation of the transfer will be required.

What is a gift letter?

A gift letter is a document that certifies the funds you’re receiving for your down payment are a gift, not a loan. Lenders require this letter to ensure the money doesn’t need to be repaid, which could affect your ability to afford the home.

The letter must include the donor’s name, contact information, relationship to you, the gift amount, and a statement that the funds are a gift with no repayment required. You can see an example gift letter at this link.

Both you and the donor will need to sign the letter, and your lender may ask for additional documentation to verify the transfer of funds.

How much down payment should you plan for?

According to real estate data provider ATTOM, the current median down payment on a house in the U.S. is $64,000, or about 16.6% (based on a median home sales price of $385,000).

Data from the National Association of Realtors (NAR) reports a similar median down payment estimate of 15% for all buyers. However, NAR cites first-time homebuyers typically come in with smaller down payments of about 8%.

To give you a clearer picture of what to expect, here’s a breakdown of down payments for various home values and percentages:

Down payment guide

Home price	5% down	10% down	15% down	20% down
$300,000	$15,000	$30,000	$45,000	$60,000
$400,000	$20,000	$40,000	$60,000	$80,000
$500,000	$25,000	$50,000	$75,000	$100,000
$600,000	$30,000	$60,000	$90,000	$120,000
$700,000	$35,000	$70,000	$105,000	$140,000
$800,000	$40,000	$80,000	$120,000	$160,000
$900,000	$45,000	$90,000	$135,000	$180,000
$1,000,000	$50,000	$100,000	$150,000	$200,000
$1,500,000	$75,000	$150,000	$225,000	$300,000

Vet the donor’s interests

Before accepting gift funds, it’s important to have a clear conversation with the donor about their motivations and expectations. While gift money is typically given with the best intentions, it’s crucial to ensure that the donor understands the implications and has no hidden expectations.

For example, you’ll want to confirm that the donor doesn’t expect repayment or any form of control over the property. If the donor might face financial hardship as a result of giving you the money, it’s wise to discuss alternatives. Additionally, make sure they’re aware of any tax implications that could arise.

What donors should know

Here are some other things donors should keep in mind:

• Select a gifting method: Decide whether to transfer the gift directly to the recipient or to the escrow account handling the home purchase. Escrow accounts can provide added documentation for lenders.
• Sign a gift letter: Donors must sign a gift letter that certifies the funds are a gift, not a loan. This is required by most lenders.
• May need to report the gift on your taxes: In 2024, a donor can gift up to $18,000 ($36,000 for a married couple) to each recipient without incurring a gift tax liability. Larger amounts may need to be reported to the IRS and could trigger a gift tax.
• Keep documentation: To avoid any issues with the lender or the IRS, donors should keep clear records of the transfer, including receipts, bank statements, and a copy of the gift letter.

Alternatives to using down payment gift funds

If gift funds aren’t an option or don’t cover the full amount you need, there are other ways to secure your down payment:

• Personal savings: Building up your savings over time is the most straightforward way to cover a down payment.
• Down payment assistance programs: Many state and local governments offer assistance programs for first-time homebuyers. These may provide grants or low-interest loans to help cover the cost.
• 401(k) or retirement loan: Some buyers use funds from their retirement accounts to cover down payments. Be cautious, though, as this could affect your future financial security.
• Sell assets: Selling assets like a car, collectibles, or investments can help raise funds for a down payment.

Get started with a top agent today

Navigating the homebuying process, including managing down payment gift funds, can be complex. A top real estate agent can provide valuable insights, guide you through the paperwork, and ensure you’re meeting all lender requirements. Whether you’re buying your first home or making a move, having expert advice on your side makes a big difference.

Ready to get started? HomeLight’s free Agent Match platform can connect you with a top agent who understands your unique needs. We analyze over 27 million transactions and thousands of reviews to find the right expert to help you complete your homebuying journey.

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