The Quick Read: Yes, on a home you will live in, or a second home, a gift from an acceptable donor can fund part or all of a conventional down payment. Investment property is the exception, and gifts are not allowed there. Whether you need any of your own money depends on the property type and your loan-to-value ratio. Whatever the case, the lender will want a signed letter and a clear paper trail.
How Gift Funds Work on a Conventional Loan
A gift is money someone gives you with no expectation of repayment. The lender treats it as an asset, not as debt, as long as it is a true gift. That distinction drives almost every rule below.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
Loan-to-value, or LTV, is the loan amount divided by the home’s value. A 95% LTV means you put down 5%. Across the wholesale programs I place files with, the standard purchase on a principal residence goes to 95% LTV. First-time buyers on a fixed rate can reach 97%, meaning 3% down. Gifts can fill that down payment, subject to lender guidelines and full file review.
Per the Fannie Mae Selling Guide, a borrower buying a principal residence or second home may use gift funds from an acceptable donor. Those funds can cover all or part of the down payment, closing costs, or reserves. Reserves are the savings left in your accounts after closing.
Why do lenders care so much about the “gift” label? Because a disguised loan changes your debt picture. A lender that sees repayment hiding behind a gift letter is looking at a different borrower than the one on the application. Two things prove a true gift: a letter that shows intent, and a paper trail that shows the money is real.
Here is the part most buyers miss. Conventional programs are built around buying a home to live in. If you are buying a primary residence, the gift rules are friendlier than most people expect.
Do You Have to Put In Any of Your Own Money?
It depends on the property and the LTV. For a one-unit primary residence, no minimum contribution from your own funds is required, even above 80% LTV. For a two- to four-unit primary residence or a second home, it depends on your leverage. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
| Property and occupancy | LTV | Own funds required? |
|---|---|---|
| One-unit primary residence | Any | No, gift can cover it all |
| Two- to four-unit primary residence | 80% or less | No |
| Two- to four-unit primary residence | Above 80% | Yes, 5% minimum |
| Second home | 80% or less | No |
| Second home | Above 80% | Yes, 5% minimum |
| Investment property | Any | Gifts not allowed |
That table follows the Fannie Mae minimum borrower contribution rules. Once you have made the 5% contribution, a gift can supplement the rest of the down payment, closing costs, and reserves.
Freddie Mac’s guide is similar on second homes above 80%: gift funds are allowed only after the borrower puts in at least 5% from their own funds. Freddie Mac’s wording on some details differs from Fannie Mae’s. Your loan officer should confirm which set of rules applies to your loan.
Leverage limits still apply on top of this. Second homes run to 90% LTV and two- to four-unit principal residences to 95% on the programs I work with, per the lender’s guidelines. The gift does not raise those caps. It only changes where the money comes from. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
One sentence on rentals: investment property is the one occupancy where a gift is off the table, so occupancy decides the answer.
Who Can Give You the Gift?
Acceptable donors are family or people with a documented family-type relationship. A friend, coworker, or employer is not on the conventional list.
Fannie Mae accepts two groups:
- A relative. That means your spouse, child, or other dependent, or anyone related by blood, marriage, adoption, or legal guardianship.
- A non-relative with a familial relationship. Examples include a domestic partner or the partner’s relative, a fiancé or fiancée, a former relative, or a godparent.
Freddie Mac uses its own term, “Related Person,” and expanded its eligible donors in Bulletin 2022-25. That bulletin covers gifts and gifts of equity. Details of who qualifies can differ between the two agencies, so name your donor to your loan officer early.
Who Cannot Give
The donor may not be, or be affiliated with, the builder, developer, real estate agent, or any other interested party to the transaction. The logic is simple. A person who profits from the sale has a reason to hand you money to close it.
The Seller as Donor
This used to be a hard no. Under Fannie Mae’s Announcement SEL-2023-08, an acceptable donor who is also the seller can be eligible if not affiliated with another interested party. Picture a parent selling you the family home. The parent is the seller and a relative. That can work, with a gift of equity as the usual tool.
The same announcement allows gift funds to come from the estate of an acceptable donor or from a trust established by one.
Quick Donor Answers
- Cousin: a relative by blood, so yes.
- Close friend: no, on a conventional loan.
- Fiancé before the wedding: yes.
- Godparent: yes.
- Your employer: no.
- Your real estate agent: no, interested party.
What Paperwork Does the Lender Need?
You need a signed gift letter and proof that the money moved. Both pieces matter, and a letter alone is not enough.
The Gift Letter
Freddie Mac’s message text lists the contents of a gift letter. It is signed by the donor and shows:
- the donor’s name, mailing address, and phone number
- the donor’s relationship to you
- the actual or maximum gift amount
- a statement that repayment is not required
Fannie Mae also looks for the transfer date. Use one letter template that covers all of these, and have the donor sign it.
Proof of Transfer
Fannie Mae clarified in Announcement SEL-2022-08 that evidence of an electronic transfer is acceptable. That means a transfer from the donor’s account to yours, or to the closing agent. Freddie Mac says the same thing in a different way: under Section 5501.8, gift funds must meet the documentation rules in its sections 5501.3 and 5501.4. An asset verification report can serve as evidence of receipt.
In practice, the lender wants to trace the money from the donor’s account to the closing table. If the donor wires funds from an account the lender never saw, expect questions.
The Consumer Financial Protection Bureau says the same in plain terms: you must prove where the money came from and sign a statement that it is a gift, not a third-party loan.
Large Deposits: What the Underwriter Sees
Underwriters read your bank statements. A big deposit with no explanation looks like a loan until proven otherwise.
If a donor drops cash into your account, an undocumented deposit may not be usable. Cash with no trail is the most common way a good gift becomes a problem. The fix is simple: have the donor transfer funds electronically, keep the confirmation, and tell your lender before the money moves.
Many borrowers ask about a “seasoning” window for gift deposits. Seasoning is a waiting period that money must sit in your account before it counts. I am not going to give you a day count, because it is not a fixed agency rule for gifts. What matters is that the source is documented and traceable. Ask your loan officer how the lender handles a gift that is already in your account.
A Gift of Equity Is a Different Tool
A gift of equity happens when a relative sells you a home below its value and the difference counts as your gift. Think of it as a price reduction that does the work of a down payment.
The Fannie Mae Selling Guide section on gifts of equity says the same donor and minimum contribution rules apply. An acceptable donor giving equity is not an interested party, so the gift is not subject to the interested party contribution limits. The loan file keeps a signed gift letter and the settlement statement listing the gift of equity.
One catch: a gift of equity may not be used for reserves. It lowers what you owe at closing. It does not put cash in your account.
Worked Scenarios
These use percentages and plain words only.
Scenario 1: Parents gift everything on a one-unit primary home. You are a first-time buyer using the 97% LTV program on a fixed rate. Your parents gift the 3% down payment. No own-funds minimum applies for a one-unit principal residence. Verdict: allowed. Documents: signed gift letter, transfer proof, and the donor’s account trail. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Scenario 2: Gift plus your own money on a second home. You want a second home at 90% LTV. That is above 80%, so you must contribute at least 5% from your own funds. A gift can cover the rest of the down payment. Verdict: allowed with your own money in. Documents: gift letter, transfer proof, and statements showing your 5%. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Scenario 3: The gift lands after you apply. Your aunt sends the money after your application. That is fine if it is documented. Tell your loan officer before the transfer, send the signed letter, and keep the confirmation. Verdict: allowed. The risk is an unexplained deposit, so do not move it quietly.
Scenario 4: A duplex you will live in. You buy a two-unit home and live in one side at 95% LTV. Above 80%, the 5% own-funds minimum applies. A gift fills the remaining 0%. Because 5% is the whole down payment, all of the down payment must be yours, and the gift can help with closing costs and reserves. Verdict: partly allowed. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
The Timeline, Step by Step
1. Pick the donor first. Confirm the relationship fits the donor list.
2. Tell your loan officer before any money moves.
3. Check the donor is not an interested party in the sale.
4. Get the signed gift letter with all required details.
5. Transfer the funds electronically to your account or to the closing agent.
6. Keep the paper trail, including the donor’s and your statements.
7. Avoid new deposits you cannot explain until after closing.
What Can Go Wrong
| Problem | Why it matters | Fix |
|---|---|---|
| Letter signed late | Lender cannot verify intent | Re-sign and re-date correctly |
| Name or amount mismatch | File looks inconsistent | Correct the letter to match the transfer |
| Cash deposit, no trail | Funds may not be usable | Re-route by electronic transfer if possible |
| Transfer from an undisclosed account | Source cannot be traced | Document that account |
| Gift has strings attached | Looks like a loan | Remove the condition or treat it as debt |
A loan labeled as a gift raises your debt and monthly obligations. It can also be treated as mortgage fraud. Do not do it.
Gift Tax in Plain Terms
Gift-tax rules are separate from lender rules. The lender cares about donor eligibility and documentation. The IRS has its own rules for donors. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit. Donors can start at irs.gov.
If a Gift Is Not Allowed or Not Enough
Plan around the gap. If your donor is a friend, ask whether a relative can give instead. If the gift only covers part, combine it with your own savings. Some buyers also look at assistance programs, which are grants and follow their own rules.
Putting down at least 20% typically avoids mortgage insurance, per the CFPB. Above 80% LTV, mortgage insurance is required on conventional loans. You can request cancellation at 80% of the original value with good payment history, and the servicer must end it automatically at 78%. A gift that raises your down payment can shorten that stretch.
Your loan officer can walk through how a gift changes your mix of leverage, reserves, and insurance. The conventional loan programs Lendmire arranges through wholesale lenders still require you to qualify on credit and income. The wholesale programs start at a 620 decision score, and most files run to a 50% total ratio ceiling under automated underwriting. A gift covers cash to close. It does not replace qualifying.
Key Terms Defined
- Gift funds: money given to you that does not have to be repaid.
- Gift letter: a signed statement from the donor confirming the money is a gift.
- Interested party: anyone who profits from the sale, such as a builder or agent.
- Gift of equity: a price reduction from a relative that counts as your gift.
- Reserves: savings left in your accounts after closing.
- LTV: the loan amount divided by the home’s value.
Frequently Asked Questions
Can my parents give me the entire down payment?
Yes, on a one-unit primary residence. No own-funds minimum applies there, so a gift from an acceptable donor can cover it all. For a two- to four-unit home or a second home above 80% LTV, you must put in 5% of your own money first. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Can a friend give me a gift?
Not on a conventional loan. Donors are limited to relatives and documented family-type relationships, such as a fiancé or godparent. A friend does not fit. If a relative can give instead, that route works.
Can a gift cover closing costs and reserves?
Yes. The gift can cover the down payment, closing costs, or reserves, subject to the minimum contribution rules. A gift of equity is the exception, because it cannot be used for reserves.
Can the seller or my agent help?
Your agent cannot, because an agent is an interested party. A seller who is also an acceptable donor, such as a parent, can be eligible if not affiliated with another interested party. Any other seller help follows separate rules.
Does the gift change my mortgage insurance?
Indirectly. Mortgage insurance applies above 80% LTV, so a larger down payment from a gift lowers your LTV. Cancellation is possible at 80% of original value and automatic at 78%, with the conditions your servicer applies. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Talk It Through With a Loan Officer
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. Call 828-256-2183 or request a quote. Everything above is subject to lender guidelines and full file review, and none of it is a commitment to lend.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B3-4.3-04 Personal Gifts
3. Fannie Mae Announcement SEL-2023-08
4. Fannie Mae Announcement SEL-2022-08
5. Freddie Mac Guide Section 5501.8
6. Consumer Financial Protection Bureau
7. Fannie Mae Selling Guide B3-4.3-05 Gifts of Equity
8. IRS
9. CFPB
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Does a Conventional Cash-Out Refinance Extend Your Loan Term? · Can You Avoid PMI on a Conventional Loan Without a Fifth Down? · Should You Wait to Avoid PMI or Buy Now With a Conventional Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.