Can a Buyer Using Gift Funds Cover the Whole Conventional Down Payment?

The Quick Read: Usually, yes, on a one-unit principal residence. Under Fannie Mae’s rules, the whole down payment can come from a gift with no minimum from the buyer’s own savings. The answer changes on a second home or a two- to four-unit home above 80% LTV, where the buyer must put in 5% of their own money first. Gifts are not allowed at all on an investment property. The file still needs an eligible donor, a signed gift letter and a traceable transfer.

What Decides Whether a Gift Can Cover Everything?

Three things decide it: how you will occupy the home, how many units it has, and the loan-to-value ratio. A clean paper trail decides whether the gift survives review.

Fannie Mae’s Selling Guide on personal gifts says gift funds may pay for all or part of the down payment, closing costs or reserves, subject to the minimum borrower contribution rules. That sentence has a catch built in. The contribution rules are where files get surprised.

Here is how the Fannie Mae table reads by property type:

Freddie Mac’s Loan Product Advisor message updates point to Guide Section 5501.3 for gift letters and evidence of fund transfer, with related content in Section 5501.4. Lenders also add their own overlays, so the loan officer’s answer on a specific file can be stricter than the agency table. Ask before you assume.

How Much Leverage Does a Full Gift Actually Fund?

A full gift works with the leverage the conventional programs allow. On a one-unit principal residence, the wholesale programs Lendmire works with allow 97% LTV (3% down) when at least one borrower is a first-time buyer, meaning no ownership interest in a residence in the previous three years, on a fixed rate. Otherwise the limit is 95% LTV (5% down). Two- to four-unit principal residences go to 95%, and second homes go to 90%. All of this is subject to lender guidelines and full file review.

So a first-time buyer on a one-unit home can have the entire 3% come from a donor. The gift is just the source of the money. The loan is the same loan.

Here is a plain scenario. Picture a first-time buyer purchasing a one-unit principal residence at 97% LTV, with a parent giving the full 3%. Under the Fannie Mae table, no own-funds minimum applies. Now change one fact: the buyer picks a duplex they will live in, at 95% LTV. The same parent’s gift can no longer cover everything. The buyer needs 5% of their own funds first, and the gift can cover the remainder of the down payment, closing costs and reserves. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Same buyer, same donor, different answer. Occupancy and unit count did it.

Who Counts as an Eligible Donor?

Donors must be relatives or have a familial relationship with the borrower. Fannie Mae defines relatives as the borrower’s spouse, child or other dependent, or anyone related by blood, marriage, adoption or legal guardianship. Non-relatives who share a familial relationship also qualify.

Fannie Mae’s down payment and closing cost assistance page adds more examples: domestic partners and their relatives, fiancé(e)s, former relatives, and people with long-standing familial or mentorship relationships.

Who does not count? A builder, a real estate agent or any other interested party in the transaction. Money from those sources is not a personal gift. It falls under separate interested-party contribution limits.

One exception is worth knowing. A seller who is an acceptable donor, and who is not affiliated with another interested party, may give gift funds. Gift funds sourced from the estate of an acceptable donor, or from a trust the donor established, are also allowed. A parent selling a home to their child fits this pattern.

There is also a household rule. If the donor has lived with the borrower for the last 12 months, the gift counts as the borrower’s own funds toward the minimum contribution, as long as both will use the home as their principal residence. That can matter on a duplex file where the 5% rule would otherwise apply.

What Can the Gift Pay For?

A gift can pay for the down payment, closing costs and financial reserves, once any minimum contribution is met. That makes a difference to cash-to-close, because the down payment is only part of what a buyer brings.

A gift of equity is the exception on reserves. It may not be used for financial reserves.

A gift of equity is a different animal from cash. It shows up as a seller price reduction or credit on the settlement statement. Fannie Mae’s gift of equity topic requires a signed gift letter in the file and a settlement statement that lists the gift. It is not treated as an interested party contribution, so it is not subject to those limits. The same donor and minimum contribution rules apply to it.

The price and value still come from the sales contract and the appraisal. The gift does not change how the home is valued.

Three Ways the Cash-to-Close Can Play Out

No dollar figures are needed to see the pattern. Think in terms of what the buyer owes at closing and what the gift covers.

1. Full gift, one-unit home. The donor covers the down payment and the closing costs. The buyer brings little or nothing of their own. This is allowed on a one-unit principal residence under the Fannie Mae table.

2. Partial gift. The gift covers most of the down payment, and the buyer pays the rest and the closing costs from savings. This is the most common shape. The gift letter should state the actual amount, or a maximum amount.

3. Gift falls short. Closing costs come in higher than expected, or the buyer needs reserves that the gift doesn’t cover. The buyer has to fill the gap with their own documented funds, or the donor gives more. If the gift amount changes after the letter is written, the letter should be updated, and the file may need to be resubmitted through automated underwriting.

The third scenario catches buyers who sized the gift to the down payment alone. Ask your loan officer for an early estimate of total cash needed, then size the gift to that.

What Paper Trail Does the Lender Want?

The lender wants a signed gift letter and proof the money moved. Without both, a gift can fall apart late in the file.

The gift letter, per Freddie Mac’s guidance in its message updates, must be signed by the donor. It must include:

• The donor’s name, mailing address and phone number
• The donor’s relationship to the borrower
• The actual or maximum gift amount
• A statement that repayment is not required

Then the transfer. Freddie Mac requires evidence of transfer from the donor’s account to the borrower’s account, or from the donor’s account to the closing agent. Fannie Mae says the lender must verify that the donor had the funds available or that they were actually transferred.

Cash is where most gifts break. A donor hands over an envelope, the buyer deposits it, and the lender now sees a large deposit with no source. Have the donor move the money by wire or check from their own account, and keep both account statements. The donor’s account is the source. The buyer’s deposit is just the landing spot.

Operator habit worth copying: ask the donor for a recent statement showing the funds before the money moves. That one page answers the “did the donor have it” question before the underwriter asks.

How a Full Gift Changes the Loan

A gift changes where the money comes from. It does not change the loan.

Mortgage insurance is the main consequence. Above 80% LTV, mortgage insurance is required. You can request cancellation at 80% of the original value, with a good payment history, no subordinate liens and no decline in value. The servicer must terminate it automatically at 78% under the Homeowners Protection Act. Published typical annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote, and the actual figure depends on the file. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Credit and ratios still apply. The wholesale conventional programs start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%. A gift is not a debt, so it does not add to the ratio. A loan from a relative is different. It is a liability and can affect how much the buyer qualifies for. That is why the letter must say repayment is not required.

For lower-income buyers, HomeReady and Home Possible carry an income limit of 80% of area median income. Fannie Mae’s HomeReady FAQs say gifts, grants and Community Seconds can fund the down payment and closing costs, with no own-funds minimum on one-unit properties. HomeReady also has cancellable monthly mortgage insurance with lower-than-standard coverage at high LTVs. On a two- to four-unit principal residence above 80% LTV, HomeReady asks for 3% from the buyer’s own funds unless a grant is used. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Mistakes That Derail Gifts

Most gift problems are paperwork problems, not rule problems.

• Wrong donor. A builder, agent or other interested party is not an eligible donor.
• Cash deposits. Unsourced cash into the buyer’s account creates a documentation gap.
• Missing letter or missing transfer evidence. The letter alone is not enough.
• Letter doesn’t match the transfer. Amount, donor name or account details don’t line up.
• Gift disguised as a loan. If the donor expects repayment, it is not a gift. The lender can treat it as debt.
• Assuming gifts work on any property. They don’t work on an investment property, and they hit the 5% rule on a second home or small multi-unit above 80% LTV.
• Gift of equity for reserves. Not allowed. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

A Quick Self-Check

Run these in order:

1. Will you live in the home as your principal residence?

2. Is it a one-unit home? If so, a full gift is allowed.

3. If it has two to four units, or it is a second home, is your LTV above 80%? If so, plan for 5% of your own funds.

4. Is your donor a relative or someone with a familial relationship, and not an interested party?

5. Can the donor show the funds and move them by traceable transfer?

6. Does your estimate of total cash needed include closing costs and any required reserves?

If every answer works, a full gift is on the table, subject to lender guidelines and full file review.

What About the Donor’s Side?

Donors have homework too. They need a recent account statement, a willingness to sign the letter and an understanding that the money is not coming back. If they expect repayment, the loan officer needs to know now.

Gift tax is a donor-side question.

Several donors for one purchase is another common situation. Each donor generally needs their own letter and their own transfer evidence. Ask your loan officer how the lender wants multiple gifts documented before the money moves.

Key Terms Defined

LTV (loan-to-value): The loan amount divided by the home’s value or price, shown as a percentage.

Gift letter: A signed statement from the donor that the money is a gift and that repayment is not required.

Gift of equity: A seller price reduction or credit, shown on the settlement statement, that works as a gift to the buyer.

Interested party: Someone with a stake in the sale, such as a builder or agent, whose money falls under separate contribution limits.

Financial reserves: Funds left after closing that the lender counts as a cushion.

Principal residence: The home you will live in as your main address.

Next Steps

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Lendmire is a mortgage broker, and it arranges these loans through wholesale lenders, subject to lender guidelines and full file review. Lendmire’s conventional loan programs are a good place to start, and the team can be reached at 828-256-2183.

Gift rules also differ by loan type.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide B3-4.3-04, Personal Gifts

2. Freddie Mac LPA feedback message updates

3. Fannie Mae Down Payment and Closing Cost Assistance

4. Fannie Mae Selling Guide B3-4.3-05, Gifts of Equity

5. Fannie Mae HomeReady FAQs