The Quick Read: Underwriters accept gift money when three things hold up: the donor is eligible, the paper trail is clean, and the loan structure allows a gift. On a one-unit primary home, a gift can cover the whole down payment and closing costs under Fannie Mae’s rules. The underwriter is not judging the generosity. The underwriter is checking that the money is real, traceable, and not a loan in disguise.
Key Takeaways
- A gift must come from an eligible donor, usually a relative or someone with a documented family-like tie.
- A signed gift letter says the money is a gift and no repayment is expected. It is not enough alone.
- The lender also needs to trace the money from the donor to you or to the closing agent.
- On a one-unit primary home, no minimum of your own money is required under Fannie Mae’s grid. Two- to four-unit homes and second homes above 80% LTV need 5% from your own funds.
- Gifts cannot be used on investment property purchases.
- A gift of equity is a price reduction, not cash. It cannot count toward reserves.
What Is the Underwriter Actually Checking?
An underwriter is checking two things: intent and traceability. Intent means the money is a true gift with no strings. Traceability means the money came from where the file says it did.
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 why that matters. Debt changes your ratios. A loan from a relative is a liability, and it would add a payment you have to qualify for. A true gift adds no debt. So the underwriter’s whole job is to make sure a loan is not wearing a gift costume.
Every later requirement follows from that logic. The letter proves intent. The donor’s funds and the transfer prove the money exists and moved. The donor rules keep out people who might have a stake in the sale.
Across the wholesale programs Lendmire places files with, the gift files that run into trouble are almost never about the donor’s generosity. They run into trouble because the money moved before anyone planned the paper trail. Plan the trail first, then move the money.
Who Can Give You the Money?
Fannie Mae allows a personal gift from an acceptable donor, according to its Selling Guide section on personal gifts. Acceptable donors fall into a few groups.
- Relatives. Your spouse, child or other dependent, or anyone related to you by blood, marriage, adoption or legal guardianship.
- Familial relationships. A domestic partner or the partner’s relative, or a fiancé(e). Other close ties may qualify when documented.
- Seller-donors. A seller who is also an acceptable donor, with no other affiliation, is allowed.
Who is out? The donor cannot be, or be affiliated with, the builder, developer, real estate agent or any other interested party. A friend with no family-like tie is generally not an acceptable donor on a conventional loan. “Generally” matters here, because the definition of a close, family-like tie has widened in recent years.
Freddie Mac widened its own definition in Bulletin 2022-25. It now covers unrelated people with close, family-like ties to the borrower. The same update made a trust set up by a related person, and the estate of a related person, eligible donors. For a trust or estate, the trustee or the estate’s authorized representative signs the gift letter.
Individual lenders and mortgage insurers can be stricter than either agency. If your donor is a close family friend, a godparent, or a trust, ask early. Do not assume.
Do You Have to Put In Any of Your Own Money?
It depends on the LTV (loan-to-value, the loan as a share of the home’s value) and on how you will use the home. Here is the Fannie Mae grid in plain form.
| Situation | Own funds required? |
|---|---|
| Any one- to four-unit primary home or second home, LTV at 80% or less | None. A gift can cover all funds needed |
| One-unit primary home, LTV above 80% | None. A gift can cover everything |
| Two- to four-unit primary home, LTV above 80% | 5% of your own funds first |
| Second home, LTV above 80% | 5% of your own funds first |
After the 5% minimum, gifts can supplement the down payment, closing costs and reserves. Freddie Mac applies a similar 5% condition to gifts on second homes above 80%. That detail comes from its Guide, and your lender will confirm the current wording.
Now connect this to the leverage you are likely to use. On a one-unit primary home, the standard purchase program goes to 95% LTV, which means 5% down. First-time buyers with a fixed rate can reach 97% LTV, which means 3% down. Two- to four-unit primary homes also go to 95%. Second homes reach 90%. All of these are subject to lender guidelines and full file review.
A buyer using a gift on a duplex at 95% LTV has to bring that first 5% personally. The same gift on a single-family home at the same LTV needs no personal contribution. Same donor, same gift, different answer. The unit count decides it. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
One more rule belongs here. Gifts are not allowed on an investment property purchase. If the home is for you to live in, you are in the right lane. If it is not, a gift will not work, and occupancy decides the leverage rules that apply.
The Gift Letter: What It Must Say
The gift letter is the document that shows intent. Fannie Mae requires a letter signed by the donor. Freddie Mac’s checklist messaging lists the same items and allows either an actual amount or a maximum amount.
A solid letter includes:
1. The gift amount.
2. A plain statement that no repayment is expected.
3. The donor’s name, address and phone number.
4. The donor’s relationship to you.
5. The donor’s signature.
Skip clever wording. Phrases like “to be repaid if I sell” or “until I can return it” turn a gift into a loan on paper. Anything tied to a future event or an informal repayment understanding gives the underwriter a reason to treat it as debt.
Use your lender’s template if they offer one. It already contains what the file needs, so there are fewer surprises later.
The Paper Trail: How the Money Has to Move
A letter alone does not clear a gift. The lender must also be satisfied that the donor has the money, and that it moved to you or to the closing agent. Fannie Mae allows this to be shown with bank statements or with the transfer from the donor’s account into yours or the closing agent’s.
If the funds are not moved before settlement, the lender must document that the donor gave the closing agent the money. Acceptable methods are an electronic transfer, a certified check, a cashier’s check or another official check.
| Method | What the file needs | Common pitfall |
|---|---|---|
| Wire or electronic transfer | Donor statement showing the withdrawal and your statement showing the deposit | Amounts or dates that don’t match |
| Check from donor to you | Copy of the check and both account records | Deposit lands in an account not in the file |
| Official check to closing agent | Documentation of the check and the donor’s funds | Missing record of where the funds came from |
| Cash handed over | Not traceable | Cannot be documented as a gift |
Do a simple matching test before you send anything. The amount leaving the donor’s account should equal the amount arriving in yours, and the dates should line up. Odd gaps invite questions.
Cash is a common trap. A pile of cash from a donor cannot be traced, so underwriting has nothing to verify. Move it through an account first, in a way the file can document.
Timing: Who Does What, and When
Move the donor’s money before settlement, and ideally with a plan in place before you apply. Delays in moving or documenting funds can hold up a closing. Here is a practical sequence for the three people involved.
Before you apply. Confirm with your loan officer that your donor is eligible. Run the own-funds test for your property type and LTV. Ask for the lender’s gift letter template.
During processing. The donor signs the letter. The donor gathers statements showing the funds. You and the donor agree on how the money moves. Then it moves, and both of you save the records.
When the underwriter issues conditions. Expect a request for the letter, the donor’s funds, and proof of transfer. Respond with the complete package in one send rather than piece by piece.
Before closing. Confirm that any gift going to the closing agent is documented. Make sure the final settlement figures reflect it.
Many buyers ask whether money already sitting in their account still needs a letter. If the deposit arrived as a gift, the file generally still needs to document it as one. Ask your lender how they treat deposits that arrived before the application.
A Worked Example Without the Dollar Figures
Picture a buyer purchasing a one-unit primary home at 95% LTV. A parent plans to cover the 5% down payment and some closing costs. Nothing else is saved. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
The loan officer confirms the parent is an eligible relative. A one-unit primary home needs no minimum from the buyer’s own funds, so the gift can cover the whole amount.
The parent signs a letter with the amount, a no-repayment statement, contact details and the relationship. The parent wires the funds into the buyer’s account and keeps the statement that shows the withdrawal.
Then the underwriter issues a condition. The deposit in the buyer’s account needs sourcing. The buyer sends the letter, the parent’s statement and the buyer’s own statement together. The amounts and dates match. The condition clears.
Change one fact. Make the home a duplex at the same LTV. Now the buyer must contribute 5% personally before any gift counts. The parent’s money still helps, but only after that first slice.
Where the Rules Break: Edge Cases
Gift of equity. A gift of equity is not cash. A seller who is an acceptable donor lowers the price, and the gap between price and value is the gift. It is not an interested-party contribution, so it falls outside Fannie Mae’s interested-party limits, per its gift of equity guidance. The file needs a signed gift letter, retained in the loan file. Freddie Mac expects the gift of equity to appear on the settlement or closing statement. The appraisal needs to support the value, since the gift depends on the price sitting below it. A gift of equity cannot be used for reserves.
Live-in donor. If your donor has lived with you for 12 months and will keep living in the new home, the gift can count as your own funds toward the minimum contribution. The file needs a donor certification and proof of shared residency, such as a bill or bank statement showing the same address.
Wedding gifts. Freddie Mac has special timing and documentation rules for wedding gifts. The details have changed over time, so ask your lender for the current rule.
Earnest money. Freddie Mac has an exception for earnest money deposits. Ask how your lender handles a donor paying a deposit directly.
Grants and employer help. These follow their own rules. Fannie Mae’s grants guidance allows a grant to cover all funds needed on a one-unit primary home above 80% LTV, with a 5% own-funds minimum for two- to four-unit homes. Lender-funded grants must be tied to a HomeReady purchase loan. HomeReady carries an income limit of 80% of area median income. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Seller as donor. Freddie Mac carves out an exception to its interested-party rules for gifts from a related person who is also the seller. The donor still cannot be the builder or affiliated with another interested party.
Multiple donors and installments. The same logic applies to each piece: eligible donor, letter, traceable transfer. Several smaller gifts mean several records. Lenders may handle them differently, so raise it before the money moves.
Loan-like arrangements. Be careful about anything that sounds like repayment. A donor who expects the money back someday has made a loan. A loan adds debt to your file and is a different thing entirely.
Red Flags and How to Fix Them
| What the underwriter sees | Why it gets flagged | How to fix it |
|---|---|---|
| Large deposit with no explanation | Source unknown; could be a loan | Provide the letter, donor funds and transfer proof |
| Cash deposit | Cannot be traced | Ask your loan officer what documentation is possible |
| Donor not on the eligible list | Fails donor rules | Check whether a documented family-like tie applies, or use another source |
| Amounts or dates don’t match | Chain of custody breaks | Gather both statements; explain differences in writing |
| Letter missing a required item | Intent not fully shown | Have the donor re-sign a complete letter |
| Language about repayment | Looks like a loan | Replace with a clean letter, if it was a true gift |
Fixes depend on the lender and the facts. Do not backdate a document or edit a statement. If something went wrong, tell your loan officer early. A problem explained up front is almost always easier than one the underwriter finds alone.
What a Gift Does to Your Loan
A bigger gift means a smaller loan and a lower LTV. That can reduce or remove mortgage insurance, which is required on conventional loans above 80% LTV. You can ask for cancellation at 80% of the original value with good payment history, and the servicer must 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. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
A true gift adds no debt payment. Cash gifts can count toward reserves. A gift of equity cannot.
Your credit still matters. The wholesale conventional programs start at a 620 decision score, and the automated finding governs most files, with a 50% total ratio ceiling. A gift fixes the cash problem. It does not fix the credit or ratio problem. Every figure here is subject to lender guidelines and full file review.
Key Terms Defined
Gift letter: A signed statement from the donor giving the amount, saying no repayment is expected, and naming the donor and their relationship to you.
Acceptable donor: A relative or a person with a documented family-like tie, who has no stake in the sale.
Interested party: The builder, developer, agent or anyone else who gains from the sale going through.
Gift of equity: A price reduction from a related seller. It is not cash.
LTV: Loan-to-value, the loan amount as a share of the home’s value.
Own-funds contribution: The minimum share of money that must come from you rather than from a gift.
Reserves: Money left in the bank after closing to cover payments.
Frequently Asked Questions
Can a friend give me a gift for my down payment?
Usually not on a conventional loan. Fannie Mae requires a relative or a donor with a familial relationship. Freddie Mac now accepts unrelated people with close, family-like ties, but that tie has to be documented. Lenders can be stricter than the agencies, so ask before the money moves.
Is a gift letter enough on its own?
No. The letter shows intent. The lender also needs proof the donor has the funds and proof of the transfer to you or to the closing agent. Without both, the underwriter will likely issue a condition.
Can I use a gift on a second home or a duplex?
Yes, with a condition. On a two- to four-unit primary home or a second home above 80% LTV, you must put in 5% of your own funds first. The gift can then cover the rest of the down payment, closing costs and reserves. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Can a gift of equity count as reserves?
No. A gift of equity is a price reduction, not cash. Under Fannie Mae’s rules it cannot be used for financial reserves, though a cash gift can.
What if the gift hit my account before I applied?
Tell your loan officer right away. Expect a request for the letter, the donor’s funds and the transfer record. Ask how the lender treats deposits that arrived before the application. Outcomes depend on the lender and the file.
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 with the conventional loan programs, and read Lendmire’s piece Gift-Funded Down Payment Rules on a Conventional Loan for a closer look at donor and documentation details. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. 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
2. Freddie Mac Guide Bulletin 2022-25
3. Freddie Mac LPA feedback messages
4. Fannie Mae Selling Guide B3-4.3-05, Gifts of Equity
5. Fannie Mae Selling Guide B3-4.3-06, Grants and Lender Contributions
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Conventional Loan Down Payment Rules for a 2-4 Unit Primary Home · Does a Conventional Loan Actually Require 20% Down? · Is a Minimum Down Payment a Mistake on a Conventional Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.