Make home ownership a reality using gift money for a down payment correctly, effectively
Quick insights
- Using gift money can help you afford a larger down payment, potentially lowering monthly payments, improving loan terms or eliminating private mortgage insurance (PMI).
- Lenders require a gift letter and a clear paper trail to verify the source of funds and ensure compliance with regulations.
- Different loan types (conventional, FHA, VA, USDA) have specific guidelines on who can gift money for a mortgage down payment and how it can be used, so consult your lender.
If you’re planning to buy a home, you may need to make a large down payment. But saving for a down payment is difficult for many, especially first-time homebuyers. And it’s not always easy or quick.
Thankfully, if you’ve received a large sum of gift money, it can be beneficial to put some or all of it toward a down payment or other closing costs.
How to use gift money for a down payment
While the process might differ slightly depending on the type of loan you’re applying for, here are a few common steps to take if you plan to use gift money for a down payment.
Talk to your lender first
Before any money changes hands, discuss your plan to use gift funds with your loan officer. Ask them about specific requirements for donors, letters and documentation.
Provide a gift letter for the mortgage
A gift letter needs to be from the person who gave you the funds, and they need to show that the gift doesn’t need to be paid back.
Lenders typically provide a standard gift letter for you and the donor to complete. You will need to have the donor include the following details in the letter to your lender:
- Their name(s) and contact information
- Their relationship to you
- The address of the home you’re planning to buy
- The exact dollar amount of the gift
- Their bank and account information to show where the money is coming from
- The date they gave you the gift money or the date they will transfer funds
- A statement that reiterates that the money is a gift and doesn’t have to be repaid
- Their printed name(s) and signature(s)
Make sure this letter is drafted and signed according to your lender’s instructions. Any errors or missing information can delay your loan approval.
Along with the gift letter, you may need to provide additional information from the person who gave you the gift. Your home lending advisor or lender will let you know what additional information you need to provide.
Document the transfer of funds
Lenders need a clean paper trail to verify the source of the funds and make sure they comply with anti-money laundering regulations.
There are two primary ways to handle the transfer:
- Donor to you, then to escrow: The donor writes you a check or wires the money directly to your bank account. You then deposit it. You will need to provide your lender with a copy of the check and the deposit slip or wire transfer confirmation. You’ll also need to provide your bank statement showing the funds entering your account.
- Donor directly to escrow: In some cases, the donor can wire the funds directly to the escrow or title company handling the closing. This can simplify the paper trail, as the money doesn’t pass through your personal account. You will still need the gift letter and proof of the wire transfer from the donor’s account.
Lenders look at your bank statements for the past two to three months to verify your assets. Any large, unusual deposits need to be explained. If you deposit a large cash gift right before applying for a mortgage, it will raise a red flag. This is why properly documenting the gift with a letter and transfer records is so important.
Who can gift money for a mortgage down payment?
Just about any mortgage allows gift money to be put toward a down payment. Most conventional mortgage loans allow homebuyers to use gift money for their down payment and closing costs as long as it’s a gift from an acceptable source, such as from family members. The list includes:
- Parent
- Children (including adopted, step and foster children)
- Sibling (including step, foster and adopted siblings)
- Grandparent (including great-grandparents, step and foster grandparents)
- Aunt and uncle (including great, step and foster aunt or uncle)
- Niece or nephew (including step-nieces or nephews)
- Cousins (including adopted and step-cousins)
- In-laws (including parents and grandparents, aunt, uncle, brother- and sister-in-law)
- Domestic partner
- Fiancé/fiancée
Here are the rules broken down by loan type.
Using gift money with conventional loans
Fannie Mae and Freddie Mac explain that, for a conventional loan, a gift can be provided by the following: “A relative, defined as the customer’s spouse, child, or other dependent, or by any other individual who is related to the customer by blood, marriage, adoption, or legal guardianship; or a non-relative that shares a familial relationship with the customer (defined as a domestic partner, individual engaged to marry the customer), or unrelated friend (defined as former relative, godparent, or relative of the domestic partner).”
Whoever the donor is, they cannot be connected in any way with interested parties who would benefit from the transaction. These include the real estate agent, builder and developer. This way, the down payment gift is free of any conflict of interest.
Using gift money with FHA loans
If you apply for an FHA loan, your gift funds must be from family or another eligible donor. Cousins, nieces and nephews are not able to offer gift money under standard family guidelines.
Gifts from your employer, labor union or charitable organizations are also allowed by the FHA. You can also use funds from government agencies or public entities that provide homebuying assistance to low-to-moderate income or first-time buyers.
Using gift money with VA loans
The Department of Veterans Affairs offers zero-down mortgage options for military veterans in certain circumstances. There are few restrictions on who can give you a gift toward your home purchase, but there is one major stipulation: the gift cannot be from someone who is an interested party.
Just like with a conventional loan, an interested party would be someone who has a role in your transaction, such as a builder or developer, another broker, a real estate agent or the seller.
Using gift money with USDA loans
Another government-backed mortgage, a USDA loan, is intended for low-income borrowers living in suburban or rural areas. It has no down payment requirement.
As such, gift funds may not count toward down payments. However, they can be used to cover the loan’s other closing costs as long as the donor has no interest in the transaction. You will still need a gift letter, as described above. (Note that Chase does not offer USDA loans at this time.)
Do you owe taxes on gift money for a down payment?
While you, the recipient, generally don’t have to worry about paying taxes on a financial gift, the donor might. It’s helpful to understand the rules so you can inform your generous family member or friend.
As of 2026, an individual can give up to $19,000 per person per year without having to file a gift tax return. This is known as the annual gift tax exclusion.
What if the gift is larger than the annual exclusion? The donor will need to file a gift tax return (Form 709) with the IRS. For more in-depth information, we recommend consulting a tax professional.
How much money can you gift for a down payment?
Usually, there aren’t any limits on the amount of money someone can give you toward your mortgage down payment.
Also, you may be required to pay a portion of your down payment from your personal funds, depending on the property type and the amount you put down. If the property you’re purchasing is a primary residence, you can generally use your gift for all or part of the down payment.
However, if you’re purchasing an investment property or second home, you may need to use your own funds for the down payment. Keep in mind that FHA and VA loan options aren’t available to buyers purchasing a second home.
For conventional mortgages with a loan-to-value ratio higher than 80% on a two-to-four unit second home, a borrower must make a 5% contribution from their own funds. Once the minimum borrower contribution requirement has been satisfied, then the gift can be used to supplement the down payment.
Advantages of using gift money for your down payment
One of the biggest advantages of receiving down payment gift money is that you’ll be able to put down a larger amount than you would have without it. This could mean buying a more expensive home or reducing the total amount you’re financing. It could lower your monthly payments or even eliminate the need for private mortgage insurance (PMI).
Another great advantage of using gift money to help with your home purchase is that it can help you come up with a down payment more quickly, which can put you one step closer to buying a home.
A larger down payment may also improve your loan-to-value ratio, potentially qualifying you for better interest rates and loan terms.
Alternatives to a down payment gift
As a borrower, there aren’t many disadvantages to using a gift for a down payment. While there are strict documentation requirements, and accepting a large financial gift can sometimes create tension or expectations within personal relationships, a down payment gift presents few downsides for the person on the receiving end.
That said, if you decide not to use your gift for the down payment, you can use your gift money for closing costs, which are generally 2% to 5% of the overall loan cost.
If you need help with your down payment but aren’t fortunate enough to receive a gift, you can also look into homebuyer assistance programs to get you into your dream home sooner.
In summary
Using gift money for a down payment can change the game for many homebuyers, helping you secure your dream home faster and with less financial strain. Take time to understand the guidelines and work closely with your lender to make the most of this generous contribution.
Ready to take the next step? To learn more about how gift money works, or to discuss low down payment programs, contact a Home Lending Advisor. And when you’re ready, explore Chase’s wide range of home loan options to find the fit for your needs.
