The Quick Read: A relative or other acceptable donor can pay your whole down payment and closing costs on a HomeReady purchase of a one-unit primary home, as long as the gift is documented and the donor has no stake in the sale. You also have to meet the program’s income cap of 80% of area median income. Gifts get harder on two- to four-unit homes and second homes, and they are not allowed on investment property.
What Is HomeReady, and Where Do Gifts Fit?
HomeReady is Fannie Mae’s low-down-payment conventional program for buyers with moderate incomes. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. Freddie Mac offers a similar program called Home Possible. Its income limit is also 80% of area median income.
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.
Here is the part people miss. A gift is not a separate loan. It is a source of money for the down payment, closing costs, or reserves. The loan itself is an ordinary conventional mortgage, and Lendmire arranges these through its conventional loan programs with wholesale lenders in the 16 states where it is licensed for consumer lending.
Two gates sit in front of the gift:
1. The loan must qualify. That means the income cap, the credit score, and the debt ratios.
2. The gift must be acceptable. That means the right donor, the right paperwork, and a clean transfer.
Fail either one and the gift does not matter.
Can a Gift Really Cover the Whole Down Payment?
On a one-unit primary residence, yes. Fannie Mae’s HomeReady FAQ says gifts, grants, and Community Seconds can fund the down payment and closing costs with no minimum contribution from the borrower’s own funds on one-unit properties. The contribution table in the HomeReady underwriting rules says the same. At 80% loan-to-value or less, no minimum borrower contribution is required on one- to four-unit primary residences. Above 80% on a one-unit home, own funds are also not required.
Loan-to-value (LTV) is the loan balance divided by the home’s appraised value. Leverage on a purchase tops out at 97% for a first-time buyer with a fixed rate, and 95% otherwise. A “first-time buyer” here means no ownership interest in a residence in the previous three years. Those limits are subject to lender guidelines and a full file review.
A gift can also cover reserves, which are the savings a lender wants to see left over after closing. There is one exception. A gift of equity cannot be used for reserves.
Where Does the Gift Rule Change?
The general rule bends in four places.
- Two- to four-unit homes and second homes in standard conventional lending. Above 80% LTV, the Selling Guide’s gift topic requires the borrower to put in 5% from their own funds. After that, gifts can cover the rest of the down payment, closing costs, and reserves. HomeReady has its own contribution row for multi-unit homes, and the lender confirms the current figure on the live guide page.
- Investment property. Gifts are not allowed. Occupancy decides the rules, so a gift only works on a home you will live in or, with limits, a second home.
- Donor who lives with you. A gift from an acceptable donor who has lived with you for 12 months can count as your own funds. The lender will want a donor certification for that case.
- Manual underwriting. HomeReady loans normally run through Fannie Mae’s automated system, Desktop Underwriter. Manual underwriting is allowed but carries a lower maximum LTV, which can shrink how much a gift helps.
Who Is an Acceptable Donor?
An acceptable donor is a relative or someone with a familial-type tie to you, who has no connection to the sale. Fannie Mae defines a relative as your spouse, child or other dependent, or anyone related by blood, marriage, adoption, or legal guardianship. The current list also reaches beyond family in the legal sense.
| Donor | Acceptable? | Notes |
|---|---|---|
| Parent, grandparent, sibling | Yes | Related by blood, marriage, or adoption |
| Spouse or dependent | Yes | Counts as a relative |
| Domestic partner or partner’s relative | Yes | Listed as a familial relationship |
| Fiancé(e) | Yes | Listed as a familial relationship |
| Former relative | Yes | Example: a former in-law |
| Long-standing mentor or family-like friend | Yes | Relationship must be genuine and stated |
| Seller | Sometimes | Only if acceptable and otherwise unaffiliated |
| Builder, developer, or real estate agent | No | Interested party to the sale |
| Lender or loan officer | No | Interested party to the sale |
Two details deserve a second look. First, the donor can be a seller who is also a family member, because a gift-of-equity donor is not treated as an interested party. Second, a gift can come from an estate or trust set up by an acceptable donor.
Your loan officer enters the donor’s relationship into the underwriting system. Pick the right category and describe the relationship honestly.
What Must the Gift Letter Say?
The gift letter is a signed statement that the money is a true gift. It typically includes:
- The dollar amount of the gift.
- A statement that no repayment is expected.
- The donor’s name, address, phone number, and relationship to you.
- The property address.
- The donor’s signature.
Lenders often supply a template. Use theirs. A letter that hints at repayment, even casually, can sink the file, because a loan from family is a debt and gets counted that way.
How Do You Prove the Money Moved?
The lender wants a paper trail from the donor’s account to yours or to the closing agent. Fannie Mae’s announcement on donor documentation says evidence of an electronic transfer from the donor’s account to the borrower’s account or the closing agent is acceptable.
There are two clean routes:
1. Donor to you. The donor wires or transfers money into your account. You show the deposit and the donor’s matching withdrawal.
2. Donor to the closing agent. The donor sends funds straight to the title or escrow company. This skips your account altogether.
Cash is where files get messy. A stack of bills handed over and deposited at a branch leaves no trail back to the donor. Avoid it.
Here is a pattern that shows up often in files like this. A relative moves the gift into the borrower’s account weeks before the application. The underwriter spots a large deposit, and now the file needs the gift letter and the donor’s statement anyway. Nothing is lost, but the paperwork scramble is avoidable. Tell your loan officer about the gift before the money moves.
What Is the Step-by-Step Order?
Gifts go smoothly when each step happens in the right order.
1. Pick the donor. Check the table above. Confirm the donor has no tie to the sale.
2. Check HomeReady eligibility. The lender tests your income against 80% of the area median income for the property’s address. Ask the lender to run it before you fall in love with a house.
3. Tell your loan officer about the gift. Do this before you apply, or at the latest at application. Early disclosure shapes how the file is built.
4. Collect the letter and the donor’s statements. The donor signs the letter. The lender may also want the donor’s recent bank statement showing the funds.
5. Underwriting. The automated system gives a recommendation. HomeReady loans generally need an Approve/Eligible finding. Credit score and debt ratios still apply. Wholesale conventional programs generally start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%. All of it is subject to lender guidelines.
6. Appraisal. The gift does not change the appraisal. The appraised value sets your LTV, and your LTV decides which contribution rule applies.
7. Closing. The funds arrive at the closing agent or in your account, with the transfer documented.
If all occupying borrowers on a purchase are first-time buyers, at least one usually has to complete a homeownership education course before closing. Ask your lender to confirm the current requirement.
How Does the Income Limit Interact With a Gift?
The income cap is the gate that stops many households before gifts come up. HomeReady requires qualifying income at or below 80% of area median income for the property’s location. Fannie Mae’s HomeReady FAQ confirms it applies to every HomeReady loan, including those in low-income census tracts.
That last point matters. An older rule exempted low-income tracts from the cap. It was dropped, though some websites still repeat it. Do not rely on them.
Lenders must use Fannie Mae’s own area-median-income lookup. Other published tables do not count. Your loan officer looks up the address and checks the timing of the casefile, because the limit tables get refreshed.
A gift does not change your income. If a family member’s generosity makes you feel like you can afford a bigger home, remember that the program tests your income, not the size of your gift. Co-borrower income generally counts toward the test, so adding a higher earner can push you over the cap. Ask your loan officer how that works before you add anyone.
How Do Gifts Compare With Grants, Community Seconds, and Seller Credits?
Gifts are one of several ways to cover the cash a buyer lacks. They work differently.
| Source | Repaid? | Key point |
|---|---|---|
| Personal gift | No | Needs acceptable donor and letter |
| Gift of equity | No | Seller family gift; not for reserves |
| Grant | No | Comes from an approved program |
| Community Second | Often, on terms | A second loan; combined LTV rises |
| Seller credit | No | Reduces closing costs, not down payment |
A lender grant can come with strings attached. Ask whether any grant in your file has to be repaid.
A Community Second is a subordinate loan from a housing agency or nonprofit. Because you now owe two loans against the home, the combined loan-to-value runs higher than the first loan alone. A manufactured home with a Community Second is held to a lower limit.
Do Gifts Change the Monthly Budget?
Indirectly, yes. A bigger gift means a smaller loan, which means a smaller monthly payment. It can also push your LTV below a mortgage-insurance threshold.
Mortgage insurance is required above 80% LTV. HomeReady’s insurance coverage is lower than standard for LTVs above 90% up to 97%. You can request cancellation at 80% of the original value if you have a good payment history, no second liens, and no decline in value. Federal law requires the servicer to end it automatically at 78%. Published typical annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
A gift that lifts your down payment past 20% skips mortgage insurance entirely. A gift that leaves you at 3% down means you carry it for years. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
A Few Buyer Scenarios
These are modeled situations, with no dollar figures.
All gift, one-unit home. A first-time buyer puts 3% down on a one-unit primary residence, with a fixed rate. Her parents gift the full down payment and the closing costs. She meets the 80% income test and uses the automated system. No minimum from her own funds is needed. Reserves come from her savings. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Gift plus savings, duplex. A buyer wants a two-unit primary residence at 95% LTV. Above 80% LTV on standard conventional lending, 5% of the purchase has to come from his own funds. His uncle’s gift can cover the rest. If he tries HomeReady instead, the lender confirms the current contribution rule for multi-unit homes. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Gift of equity. A grandmother sells her house to her grandson. The gift of equity covers part of the down payment, so the sale price is not a straight market transaction. The lender needs the letter and the appraisal. The equity cannot count toward his reserves.
Wrong donor. A buyer’s agent offers to “gift” part of her commission toward the down payment. That is a no. Agents are interested parties. Seller or lender credits, where allowed, go through a different channel with different limits.
What Goes Wrong, and How Do You Fix It?
- Missing letter. Get a signed letter from the donor. Without it, the gift is treated like an unexplained deposit.
- Cash gift. Have the donor move the money by transfer. A cash deposit with no source usually needs more documentation or cannot be used.
- Donor is an interested party. Find a different source of funds or restructure the deal.
- Gift too small. Ask your loan officer to rerun the numbers with a lower price, a different loan structure, or a grant.
- Property is a second home or multi-unit. Plan for the own-funds requirement before you shop.
- Income too high. If you are over the 80% line, a standard conventional loan with a larger gift may still work. The conventional loan limits on gifts are the same.
Donor and Buyer Checklist
Hand this to your relative.
- Confirm the donor’s relationship fits the list above.
- Confirm the donor has no tie to the builder, agent, or seller, unless the seller is family.
- Sign the lender’s gift letter, with the exact amount and a no-repayment statement.
- Move the money by traceable transfer, to you or to the closing agent.
- Keep the donor’s bank statements showing the source of the funds.
- Tell your loan officer before the transfer, not after.
- Remember that the donor’s own tax situation is theirs to sort out.
Guidelines change. The lender checks the live Selling Guide pages for the current version at the time of your loan.
Key Terms Defined
Gift funds: Money given to you for a home purchase with no expectation of repayment.
Gift letter: A signed statement from the donor confirming the amount, the relationship, and that no repayment is expected.
Gift of equity: A discount on the sale price given by a family-member seller, treated as a gift toward your down payment.
Area median income (AMI): The middle household income in the property’s area, which HomeReady uses to set its 80% income cap.
Loan-to-value (LTV): The loan balance divided by the home’s appraised value.
Community Second: A second loan from a housing agency or nonprofit that helps with down payment or closing costs.
Reserves: Savings left after closing, which the lender checks to see how long you could keep paying.
Frequently Asked Questions
Can my friend give me gift funds for a HomeReady loan?
Only if the friendship counts as a long-standing familial-like or mentorship relationship, and the friend has no tie to the sale. A casual friend usually does not meet that test. The relationship has to be real and stated in the gift letter. Your loan officer can tell you whether your situation fits.
Do I need any of my own money in the deal?
Not on a one-unit primary residence under HomeReady. Gifts, grants, and Community Seconds can cover the down payment and closing costs. Multi-unit homes and second homes above 80% LTV on standard conventional loans require your own funds first. You may still need reserves, which a gift can often cover.
Can the seller be my donor?
Yes, in one narrow case. If the seller is an acceptable donor, such as a relative, and has no other affiliation with the transaction, the seller can give the gift. A gift of equity falls in this category. A seller who is a stranger cannot make a gift this way.
Does HomeReady only work for first-time buyers?
No. Repeat buyers can use it. First-time buyers face an extra step, which is a homeownership education course for at least one occupying borrower on a purchase. The income cap applies either way.
What if I already deposited the gift before applying?
The lender will ask where the money came from, because a large deposit is a flag. You will still need the gift letter and the donor’s statement showing the withdrawal. Provide them up front, and tell your loan officer about the gift at the start.
What Should You Do Next?
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. Start by lining up your donor, the gift letter, and a traceable transfer, then ask the lender to run the income test on the exact address you want.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
2. Fannie Mae Selling Guide B5-6-02, HomeReady Underwriting Methods and Requirements
3. Fannie Mae Selling Guide B3-4.3-04, Personal Gifts
4. Fannie Mae Announcement SEL-2022-08
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Avoid PMI on a Conventional Loan Without a Fifth Down? · Does a Conventional Loan Let You Take Cash Out When You Refinance? · Can a Conventional Cash-Out Refinance Fund Another Home Purchase?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.