Last month, one of our clients got a $25,000 wedding gift from her parents to help with the down payment. She had the money in her account for three weeks before she applied for her mortgage. She thought everything was perfect, but she almost lost her approval because she didn't have a gift letter ready. The underwriter flagged the deposit right away, and we had to rush to get the paperwork together. She lost the first house she wanted because the other buyer's offer was accepted while we were still going through the paperwork.
I see this happen at AmeriSave at least once a month. They have the money they need, their credit is good, and their debt-to-income ratio is great, but the underwriting process stops because they can't prove the gift. It's annoying because you can easily avoid it if you know what lenders want up front.
In reality, your lender will want to know where the money for your down payment or closing costs came from. This isn't just a bunch of red tape. There are good regulatory reasons for lenders to make sure that gift money is really a gift and not a secret loan that will make it hard for you to pay your mortgage. Let me show you exactly how this works, what papers you need, and how to make sure that the money you get as a gift helps you buy a home instead of slowing it down.
A lot of first-time buyers think that as long as they have enough money in their bank account to cover the down payment, it doesn't matter where it comes from. I completely agree with that line of thought. You have the money and can show that you do, so what's the problem?
The issue is underwriting. The Consumer Financial Protection Bureau says that mortgage lenders must check to see if borrowers can afford to pay back their loans. This is part of the ability-to-repay rule that came about after the financial crisis of 2008. If you got what looks like a big gift but is really a loan that you have to pay back, that changes your monthly payments and maybe even your eligibility.
Underwriting is the part of the mortgage application process where your lender checks all the details of your finances. You will need to give bank statements from the last 60 days, tax returns, W-2s, pay stubs, and proof of any other assets you have. Underwriters are trained to look for strange things happening in your accounts.
Fannie Mae's Selling Guide says that lenders must explain and keep records of any large or unusual deposits in your bank accounts. For conventional loans, the standard threshold is usually any deposit that is more than 50% of your total monthly household income. So, if you make $5,000 a month, any deposit over $2,500 will make the underwriter ask questions.
The limit is even lower for FHA and USDA loans. HUD Handbook 4000.1 says that lenders must keep records of and check any deposit that is more than 1% of the home's purchase price or appraised value, whichever is higher. That's only $3,000 on a $300,000 home.
These rules are in place to stop money laundering and make sure that buyers aren't taking on hidden debt. The Bank Secrecy Act says that banks and other financial institutions must report any suspicious activity. Mortgage lenders are especially careful during the underwriting process.
When you're ready to start buying a home and have all the right paperwork, AmeriSave's digital mortgage platform will walk you through all the documents you need, including any gift letter requirements that are specific to your loan type.
The kind of mortgage you get will determine who can give you gift money and how much you can get. Let me explain the rules for each major loan program, because they are very different from each other.
The rules are pretty strict about who can give gift money for conventional loans, which are mortgages that the federal government doesn't insure.
Your partner or spouse
Your kids, whether they are biological, adopted, step, or foster kids
Your biological, adoptive, step, or foster parents, grandparents, or great-grandparents
Brothers and sisters (including step-siblings, foster siblings, and adopted siblings)
Aunts and uncles, even step-relatives
Nephews and nieces (including step-relatives)
In-laws (parents, grandparents, siblings, and, if you're engaged, future in-laws)
A fiancé or fiancée
According to Fannie Mae rules, godparents, relatives of your domestic partner, and even former relatives can be acceptable donors
One thing I tell my clients is that in most cases, friends can't give money as gifts for regular loans. The relationship has to be with a family member or a registered domestic partner. This is hard for a lot of people who have kind friends who want to help.
FHA loans are more flexible. HUD rules say that FHA borrowers can accept gifts from most family members. However, cousins, nieces, and nephews are not allowed to give gifts unless they can show that they have a clear relationship.
Close friends who can prove they have been friends for a long time
Your boss
Unions of workers
Charities that help people buy homes
Government agencies or public organizations that help families with low to moderate incomes or first-time buyers
The FHA knows that a lot of buyers, especially first-time buyers, need more help than their family can give them. This flexibility is one reason why FHA loans are still popular with buyers who don't have a lot of money saved up.
There aren't many rules about who can give gifts to people who get VA loans. The Department of Veterans Affairs says that almost anyone can give gift money for a VA loan, except for people who have a financial stake in the sale.
You can't get gifts from:
The person who sold the house
The person who builds or develops
Your real estate agent or the seller's real estate agent
Anyone else who makes money from the deal
When you think about it, this makes sense. If the seller could give you your down payment, that would be like lowering the price of the house with extra steps, which would change the appraisal and loan value of the house.
USDA loans are for people with moderate incomes who want to buy a home in a rural or suburban area. They have the same gift rules as VA loans. USDA Rural Development says that gift funds can come from almost any source, except for people who are interested in the deal.
This is where things get interesting, and to be honest, this is where I see a lot of my clients getting confused. The type of loan and the type of property you have will determine how much gift money you can use.
If you're buying a single-family home, you can use gift money to pay for 100% of your down payment. This is true for most types of loans. Yes, you read that right. Fannie Mae's Selling Guide says that if you're putting down 20% or more, every penny can come from a gift.
If you are putting down less than 20%, though, you must put in at least 5% of your own money. Lenders call this "borrower minimum contribution," and its purpose is to make sure you have some financial stake in the property beyond the gift.
Let me show you a real-life example. If you're buying a house for $350,000, which is about the median home price in the U.S. according to the Federal Reserve,
If you're putting down 20% ($70,000), you could give away all of it.
If you're putting down 10% ($35,000), you need to give $17,500 (5%) from your own money, and you can give $17,500 as a gift.
If you want to give someone a gift, you have to put down 5% ($17,500) of your own money. You can't give them anything unless you raise your down payment.
One important thing to remember is that this 5% rule does not apply to FHA, VA, or USDA loans. Those programs let you get gifts for 100% of your down payment, no matter what the percentage is.
The rules for second homes are the same as those for primary homes. If your down payment is 20% or more, you can use all of your gift funds. If your down payment is less than 20%, you have to put in 5% of your own money.
You can't use any gift money to make a down payment on an investment property, so that's the end of the line. Fannie Mae and Freddie Mac say that the borrower's own verified funds must cover the entire down payment on an investment property.
The logic is simple. Investment properties are seen as riskier loans because people are more likely to stop paying on an investment than on their main home when they are having money problems. Lenders want to know that people who buy investment properties have enough money saved up and are willing to put their own money on the line.
AmeriSave gives you personalized advice on different types of loans and properties so you can figure out exactly how much gift money you can use in your situation.
A gift letter is more than just a note that says, "Hey, I'm giving you money!" It has to have certain things in it, and if it doesn't, your lender might not accept it.
The donor's full name, address, and phone number. This lets your lender get in touch with them directly if they need to.
The donor's relationship to you, such as "father," "aunt," "employer," etc. Your loan type must allow for the kind of relationship you have.
The exact amount of money in the gift—don't round or guess. Write that if it costs $27,354.82.
Date the gift was (or will be) given—this helps set up the timeline for the money.
Property address: the exact address of the house you're buying
This is the most important part: the statement that no repayment is expected. The letter must clearly say that the gift does not need to be paid back and that there is no expectation of repayment.
Statement about the earnest money deposit: If any part of the gift was or will be used for your earnest money deposit, you should say so.
Confirmation of no financial interest: The donor and the recipient must both say that the donor is not interested in the sale of the property and is not involved in the transaction in any way (not as the seller, agent, builder, etc.).
Dates and signatures: The letter must be signed and dated by both you and the donor.
Some lenders give you their own gift letter templates, and I always say to use the one your lender gives you if they do. It makes sure you're giving them everything they need. We offer gift letter templates for different types of loans at AmeriSave, so clients don't have to guess what they need.
Bank statements from the donor showing that they had the money before giving it away
A copy of the canceled check, a wire transfer confirmation, or bank transfer documentation are all examples of proof of transfer.
Your bank statements showing that the gift money was put into your account
Some lenders want "withdrawal and deposit slips," which are pieces of paper that show money leaving the donor's account and coming into yours. This happens a lot when the gift is big.
The 60-day rule is a way to avoid a lot of paperwork. Most lenders think that money in your account for at least 60 days is "seasoned," which means they don't need to look at the same amount of paperwork.
If you know you're getting a gift and don't need to buy right away, have the person who gave it to you send the money to your account and then wait at least 60 days before applying for a mortgage. Fannie Mae says that after 60 days, these funds are considered verified and established, so they don't need as much source documentation.
But I understand. It's not always possible to wait 60 days, especially in real estate markets where there is a lot of competition. Last year, when my husband and I were just looking at homes in Louisville (we weren't buying), homes were going under contract within days of being listed. If you had to wait two months to apply for a mortgage in that situation, you would miss out on chances.
If you need to move faster, just make sure you have all the paperwork ready from the start. Get your donor's bank statements ready, have them sign the gift letter right away after the transfer, and give everything to your lender ahead of time instead of waiting for them to ask for it.
This is where I think gift givers and receivers get the most confused. Let me explain how gift taxes really work, because the truth is less scary than most people think.
You don't have to pay taxes on money that someone else gives you. End of story. The person who gives a gift is the one who has to pay the gift tax, not the one who gets it.
The IRS says that the annual gift tax exclusion for 2025 is $19,000 per person. This means that your donor can give you up to $19,000 in a single year without having to tell the IRS about it.
If they give you more than $19,000, they need to fill out IRS Form 709 (gift tax return) to tell the IRS about the gift. But just because they file Form 709 doesn't mean they have to pay taxes. The IRS says that the extra amount just counts against their lifetime gift and estate tax exemption, which is $13.99 million per person for 2025.
Let me give you a real-life example. Your parents want to give you $50,000 to put down:
The first $19,000 is not reported because of the annual exclusion.
You have to report the other $31,000 on Form 709.
That $31,000 goes against their $13.99 million lifetime exemption.
They still have $13,959,000 left in their lifetime exemption
They don't have to pay any taxes until their total lifetime gifts and estate value go over $13.99 million.
These limits are twice as high for married couples. If both of your parents want to give you money, they can each give you $19,000 without having to report it. They can each use their own lifetime exemptions if they want to give more.
One thing to keep in mind is that gifts given directly to schools for tuition or directly to doctors for medical bills are not counted as gifts for tax purposes, no matter how much they are. So, if your parents send money to the loan servicer to pay off your student loans, that's not the same as giving you cash to pay them off yourself.
As of now, the lifetime estate and gift tax exemption is set to drop a lot in 2026 unless Congress does something to keep it at its current level. This happened because the Tax Cuts and Jobs Act provisions ran out. But this doesn't change most people's ability to give down payment gifts, since very few donors are close to using up a $13.99 million lifetime exemption.
However, tax laws change often, so I always suggest that anyone giving gifts worth more than $100,000 talk to a tax professional about their specific situation.
Our loan officers at AmeriSave can help you figure out how gift money fits into your overall financial picture. And if needed, we can help you connect with ta ax professional who can answer tax questions we can't.
I've worked with hundreds of clients who used gift funds, and I've seen the same mistakes cause problems over and over again during underwriting. Let me help you avoid these problems.
The most common problem is that gift letters don't have all the information they need. One time, a client had a father who wrote a beautiful, heartfelt letter about how proud he was and how happy he was to help with the purchase of a home. It really moved me. Underwriting also turned it down because it didn't include the property address, the exact amount of money, or a statement that there was no expectation of repayment.
You should always use a template from your lender or a standard template that has all the necessary parts. Don't try to make one up from scratch based on what you think is right.
Donors, especially older relatives, don't always get why lenders need their bank statements or why they have to sign official papers. I've almost lost deals because a donor didn't want to give me paperwork because they thought their privacy was being violated.
Talk to the person who gave you the gift before you accept it. Tell them that the lender will need to check the gift, which could mean asking for their bank statements to prove they had the money. Talk about other options, like having the donor send the money directly to the closing agent, if they don't like this one.
I've seen clients try to use gift money from friends for regular loans (not allowed) or gift money from their real estate agent for an FHA loan (definitely not allowed). Before you accept a gift, make sure you know the rules for your loan type.
If you used some of your gift money to pay the earnest money deposit, which is the money you put down when your offer is accepted, you need to say so in the gift letter. I've seen closings put off because it was hard to figure out where the earnest money came from.
If you're using gift money and your own savings together, make sure to keep them separate in your records. Put the gift into your account, wait for it to clear, and check your bank statements to make sure the transaction is separate. Don't put a gift check in the bank on the same day as your paycheck and other deposits. That makes it harder to follow the paper trail.
Gift of equity is another kind of gift that you should know about. This is true if a family member sells you their house for less than what it's worth on the market. The difference between the market value and the sale price is your down payment.
Let's say that a professional appraisal says your grandmother's house is worth $400,000, but she agrees to sell it to you for $320,000. You can use that $80,000 difference as your down payment, according to FHA rules.
You need a professional appraisal that shows what the house is worth on the market.
The person giving you the gift must be a good gift giver for your type of loan (for FHA, a family member; for conventional, a friend).
You still need a gift letter, but it says "gift of equity" instead of "cash."
The seller (donor) can't get any cash from the sale except to pay off existing loans.
Gift of equity can be very helpful for families who want to keep homes in the family, but the paperwork is even stricter than for cash gifts because the property is being transferred.
Let me go over some situations I've dealt with to show how this works in real life when buying a home.
Sarah (not her real name, but the story is real) was buying her first house in Louisville for $285,000. Her parents paid for the down payment and closing costs with $30,000. She was getting a normal loan with a 10% down payment.
Parents gave a gift letter right away after sending the $30,000
The parents gave two months' worth of bank statements to show they had the money.
We wrote down the wire transfer and got confirmation from both the sending and receiving banks.
Because Sarah was putting down less than 20%, she needed 5% ($14,250) of her own money. We showed that $14,250 of the $30,000 came from her own savings (separate documentation), and $15,750 was the gift part.
Sarah's parents filed IRS Form 709 because the $30,000 was more than the annual exclusion (which was $18,000 in 2024), but they didn't have to pay any taxes.
Everything was written down ahead of time, so the process went smoothly.
Michael was getting a $220,000 home with an FHA loan. His job had a program for first-time home buyers that gave out $5,000 grants. This worked perfectly because the FHA lets employers give gifts.
A letter on company letterhead saying that the $5,000 was a grant and that the company didn't have to pay it back
A record of the rules for their program to help first-time home buyers
Evidence that Michael met the program's requirements
Directly sending money to the title company at closing
There were no gift tax reporting requirements because it was less than $19,000.
James, a veteran, was using a VA loan to buy a house that cost $425,000. His parents gave him $20,000, and his grandfather gave him $15,000. This is what it took:
Keep each donor's gift letters separate.
Bank paperwork from each donor
Proof that neither of them had any financial interest in the property
There was no need for gift tax forms because each gift was below the annual limit and the donors were not the same person.
James didn't need a down payment because the VA loan let him borrow 100% of the money. He decided to use the gift money to pay for closing costs and things he had already paid for, like property taxes and insurance. This meant he didn't have to bring as much money to closing.
Using gift money to buy a home can mean the difference between buying now and waiting years to save enough for a down payment. The National Association of REALTORS® says that the average first-time buyer in 2024 only put down 9%, and many of them used gift money to get that amount. It's perfectly fine to ask family or other acceptable donors for help. That's why these programs are there.
The most important thing is to know what you need to do ahead of time, make sure you have the right paperwork, and talk clearly with both your gift donor and your lender. Talk to possible donors early, make sure they know what will be expected of them, and have your gift letter and other paperwork ready before you start underwriting.
Every day, we at AmeriSave help people with the gift letter process. You can easily upload documents to our digital platform, and our loan officers can answer any questions you have about the gift requirements for your loan type. If you find out at the last minute that you need a gift letter or more paperwork just days before closing, that's the worst thing that could happen.
Keep in mind that most delays in getting approval for gift funds can be avoided if you have the right paperwork ready ahead of time. If you take the time to do it right, you'll have the keys to your new home before you know it.
Are you ready to buy a house with confidence? Go to AmeriSave's mortgage options page to learn about different loan programs and how gift funds can help you in your situation. We're here to help you through every step of the process.
Yes, of course. If they come from acceptable donors, wedding gifts are treated like regular gift funds. Freddie Mac rules say that relatives and friends can give wedding gifts under certain conditions. You will need to show proof of your marriage license and show that the money was deposited within 90 days of the date on your marriage license. The letter should say that the money was a wedding gift, list the relationship of each donor, and include all the usual parts of a gift letter. If more than one person gave you money for your wedding, you might need separate gift letters from each donor, depending on what your lender wants. If all the gifts are from the same type of acceptable donor, you can combine them into one letter. Be careful with this: cash wedding gifts given to you at your reception don't have a clear paper trail, which can make it hard for mortgage underwriters to do their jobs. If you got cash gifts, try to deposit them well before you start your mortgage application so that the money has time to sit in your account.
This is a big problem because your loan approval was probably based on the fact that you had those gift funds. You need to tell your lender right away if the gift doesn't work out. When your lender preapproved you, they figured that you would have enough money for the down payment, including the gift you promised. You might not be able to get a loan at all without that gift, or you might have to look into other loan programs that don't require as much money down. At that point, you could look for another donor, save more money yourself, or even switch to a loan product that requires less money down. If your credit score is 580 or higher, FHA loans only require 3.5% down. Conventional loans can go as low as 3% for first-time buyers who meet certain requirements. The most important thing is to be honest and talk to your lender early. They can help you find other ways to move forward, but they need to know what's going on before you close. Last year, a client told me that their grandmother promised them a gift but then changed her mind at the last minute because she didn't want to give that much money. We were able to change the deal so that the loan amount was higher and the PMI was lower instead of the larger down payment, but it took two weeks longer to close.
No, most of the time. Lenders usually don't ask for proof of where seasoned funds came from if they've been in your account for 60 days or more. Fannie Mae's Selling Guide says that once money has been in your account for at least two monthly statement cycles, it is considered your verified assets. But there are some cases where this rule doesn't apply. If your underwriter sees a deposit that is much larger than usual, even if it is older than 60 days, they may still ask about it, especially if it is much bigger than your normal income. If you usually have $3,000 in your checking account and then suddenly have $85,000 that has been sitting there for three months, an underwriter might still want to know where that money came from. Also, some loan programs, especially jumbo loans, need more paperwork and may ask where the money came from if you have a large balance, no matter how long it's been in your account. The best thing to do is to keep records of big gifts for at least 60 days, just in case your lender asks for them. But in most cases, the 60-day seasoning period means that you don't need a formal gift letter.
Yes, technically, but this can get complicated and cause problems. The main problem is that the person giving you the gift can take out a loan in their name that you don't have to pay back and then give you the money. But lenders will look at this very closely because it raises some red flags. If your donor takes out a personal loan or HELOC to pay for your gift, they'll need to show bank statements showing the loan deposit. Your lender might also want to see the terms of their loan to make sure you're not responsible for it in any way. The HUD rules for FHA loans say that the gift can't be a loan that you have to pay back, and lenders have to make sure they know where the money came from. This gets really complicated if the person who gave you the money takes out a loan that you have to help pay back in some way, even if it's not formal. That would mean it wasn't a real gift, which means it can't be a gift at all. I've seen this happen a few times, and to be honest, it usually makes things worse instead of better. If your donor doesn't have the money to give you, it usually means they are spending too much money, which puts everyone at risk. Instead of having someone go into debt to give you a gift, you could look into down payment assistance programs, grants for first-time buyers, or loan products that don't require a lot of money up front.
This difference is very important, and it's the reason gift letters exist. You don't have to pay back a gift, but you do have to pay back a loan even if you don't have a written agreement. Your mortgage lender cares a lot about the difference because any debt, even to a family member, affects your debt-to-income ratio and your ability to get a mortgage. Here's a real-life example for you. If your parents give you $40,000 for a down payment, If that's a real gift with a gift letter, it doesn't change your monthly payments at all. But if you really did agree to pay back a loan at $500 a month, that payment will count against your debt-to-income ratio just like a car payment or student loan would. If you're close to being able to get your mortgage, that extra $500 a month could put you over the DTI limit and get you turned down. If you take money as a "gift" but you and your family member have a private agreement that you'll pay it back, and your lender finds out about it, it's mortgage fraud. This could mean that your loan is denied, your current approval is taken away, or even legal action in the worst cases. Being completely open is the safest way to go. If someone wants to lend you money to buy a house, you need to make sure that the loan is properly documented, included in your loan application, and taken into account when figuring out your debt-to-income ratio. The gift letter makes it very clear that it is a gift and that the person does not have to pay it back.
Yes, you can use gift money to pay for closing costs, and this is very common. The Consumer Financial Protection Bureau says that closing costs usually range from 2% to 5% of the price of your home. That's an extra $6,000 to $15,000 on top of your down payment for a $300,000 home. Costs like appraisal fees, title insurance, attorney fees, prepaid property taxes, homeowner's insurance, and lender fees are all included. Gift money can pay for any or all of these costs, but the same rules for gift letters and other paperwork apply as they do for down payment gifts. In fact, a lot of buyers use gift money mostly for closing costs instead of a down payment, especially with loan programs like VA or USDA that don't require a down payment. The letter that comes with the gift should say if it is for closing costs, a down payment, or both. The letter should say how much the gift is worth and that it can be used for both purposes if you're using it for both. One good thing about using gifts to pay for closing costs is that it keeps your own savings for the down payment, which can help you avoid PMI if you can save up 20% of the down payment yourself. The same rules about who can give you money, what paperwork you need, and how much money you need to give to the borrower apply whether you're using gifts for the down payment or the closing costs.
Even if the money goes straight to the title company, you still need a gift letter. This is actually the most common way to do things because it makes the paper trail clearer. When you send gift money directly to the closing agent, you don't have to worry about the money going through your account or getting mixed up with other money. But you still need all the same paperwork: the gift letter with all the necessary information, proof from the donor that they had the money, and proof of the transfer itself. The gift letter should say that the money is going straight to the closing agent and give the closing agent's contact information. From an underwriting point of view, paying the title company directly can make things easier because there is no doubt that gift money didn't get mixed up with loans or other deposits in your personal account. Just make sure that the timing is right. The donor needs to tell the closing agent when the money will be sent, and everyone needs to agree on the exact amount. I've seen closings get pushed back because a donor sent money directly to the title company, but the amount was a little different from what the gift letter said. This made it unclear if more money was needed.
Yes, gift funds can be used for required reserves on conventional loans. Fannie Mae says that reserves must be documented in liquid assets and must be enough to cover months of mortgage payments. Gift funds can be used to meet this requirement. This is especially important for investment properties, second homes, or when borrowers are in a credit situation that is on the edge and lenders want proof of cash reserves. For instance, if your lender wants you to have six months' worth of reserves, which is six months' worth of principal, interest, taxes, and insurance payments in cash accounts, and that comes to $12,000, you can use gift funds to meet this requirement as long as they are properly documented and stay in your account. Your account must have the money at closing, and bank statements must show that it is there. But FHA loans usually don't require reserves for buying a primary residence, so this isn't as big of a problem with FHA financing. Like VA and USDA loans, primary residences usually don't need reserves. This is more important when you have more than one mortgage at the same time or when you're getting a conventional loan for a property that is considered higher risk. The letter that comes with the gift should say that the money is partly for meeting reserve requirements. The money should stay in your account and not be used to pay off debts or buy other things before closing.
If you got money as a gift years ago and it has been sitting in your savings account since then, it is now your own money. Once money has been in your account for a few months or years, it is fully seasoned and can be treated as your own verified funds. You usually don't need any paperwork to prove where that money came from. The main difference is between gifts made in the last 60 days before you apply for your mortgage and funds that have been in your account for more than one statement cycle. If you've had the money for a long time, you're just showing that you have enough assets, not that you got a gift. But if you're applying for a jumbo loan or a loan amount that is much higher than the normal limits, underwriters may ask about larger balance amounts even if they are well-seasoned. This is because they are looking at your overall financial picture more closely. But if you have a standard loan amount, money that has been in your account for a few months or years is just your money. The gift letter requirement only applies to recent transfers or deposits that happen close to when you apply for a loan or while the loan is being underwritten.
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