How Much Cash a Conventional Loan Takes to Close With Gift Funds

The Quick Read: It can be zero from your own pocket, but only under the right conditions. On a one-unit principal residence, a gift can cover the down payment, closing costs and reserves in full. On a two- to four-unit home or a second home above 80% LTV, the borrower must first put in 5% of their own funds. Occupancy, unit count, LTV and the donor decide which rule applies.

What Does “Cash to Close” Actually Include?

Cash to close is the money you must bring to the table on closing day. It is not the same as closing costs. It is the down payment plus closing costs and prepaids, less your earnest money deposit, seller credits and other adjustments.

The formula looks like this:

• Down payment
• plus closing costs
• plus prepaid items and escrow deposits
• minus earnest money already paid
• minus seller credits and other adjustments
• equals cash to close

The federal consumer-finance regulator’s Closing Disclosure explainer points to page 3 of the form, where the “Cash to Close” table sits. That figure is what your household has to have documented. Gift funds change where the money comes from. They do not change the total.

Across the wholesale programs Lendmire places files with, a purchase on a principal residence can run to 97% LTV for a first-time buyer on a fixed rate, and 95% otherwise. That means a 3% or 5% down payment sits at the center of the cash-to-close number. Closing costs and prepaids come on top. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

How Does a Gift Fit Into the Formula?

A gift can fund all or part of the down payment, closing costs or financial reserves. That is the baseline under the Fannie Mae Selling Guide on personal gifts. The limit is the minimum borrower contribution rule, which depends on the property and the LTV.

Earnest money trips up a lot of files. If you paid the deposit from savings and the gift covers the rest, the file needs both sources documented. If a relative sent the deposit, the paper trail has to show that gift too.

When Do You Still Need Your Own Money?

Whether you must contribute depends on occupancy, unit count and LTV. Here is the rule from the Fannie Mae guide, as it applies to a purchase.

Read it top to bottom. The one-unit primary home is the clean case. A fully gifted purchase works there even at 95% or 97% leverage. Once the property has two to four units, or it is a second home, and LTV goes above 80%, the first 5% must come from the borrower’s own documented assets. After that, gifts can supplement the down payment, closing costs and reserves. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Investment property is a hard stop. Gifts are not allowed. The Selling Guide says so directly.

HomeReady, Fannie Mae’s affordable product, has its own contribution rules in a separate section of the guide. Ask the loan officer how those apply before you assume either way.

One more edge case. If a donor has lived with the borrower for the last 12 months, the gift counts as the borrower’s own funds, as long as both will use the home as their principal residence. That can satisfy the 5% minimum.

Three Worked Examples (No Dollar Figures Needed)

Run the numbers on these three borrowers in percentages.

Fully gifted purchase. A first-time buyer buys a one-unit primary home at 97% LTV. The 3% down payment and all closing costs come from a parent. No own funds are required. The file needs the gift letter, proof of the donor’s funds or the transfer, and the earnest money source. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Partly gifted purchase. A buyer at 95% LTV on a one-unit home has savings for part of the cash. A grandparent covers the gap. Gifts can supplement own funds freely here, so the split is up to the family. Cash to close still has to be fully sourced. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Own-funds minimum applies. A buyer wants a duplex, living in one unit, at 95% LTV. The first 5% of the price has to come from the buyer’s own funds. A family gift can then cover closing costs and reserves. Put a gift in that first 5% slot and the loan does not work as structured. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

How Is a Gift Different From a Seller Credit?

A gift comes from a donor with a personal tie to you. A seller credit comes from the other side of the deal. Fannie Mae caps seller and other interested-party concessions by LTV, and undisclosed concessions make a loan ineligible for sale to Fannie Mae. Gifts are treated differently.

There is one overlap. Under Fannie Mae’s announcement SEL-2023-08, an acceptable donor who is also the seller can give a gift, as long as that person is not affiliated with another interested party. The same announcement allowed gift funds to come from the estate or a trust of an acceptable donor.

Who Can Give, and Who Can’t?

Acceptable donors are generally relatives, domestic partners and fiancé(e)s. That is a defined test. A casual friend does not qualify just by being generous.

Builders, developers, real estate agents and other interested parties cannot be donors. Some lenders layer on stricter rules of their own.

Two more points. A gift cannot require repayment. Money from a relative that you must pay back is a loan, and it is underwritten as debt. Employer assistance and grants are separate programs with their own rules, and employer assistance is not allowed on a second home.

What Is a Gift of Equity, and How Is It Different?

A gift of equity is a credit from the seller on the settlement statement, usually when the seller is a relative selling below market value. No cash moves. The credit lowers the price the buyer has to finance or pay.

Fannie Mae’s gift of equity section says an acceptable donor is not treated as an interested party, so the gift is not subject to the concession limits. The file needs a signed gift letter and the settlement statement showing the credit. The catch is reserves. A gift of equity can help with the down payment and closing costs, but it cannot count toward required reserves. Confirm the current wording with the loan officer.

Documentation and Timing

Lenders do not take the gift on faith. They verify it. Here is the sequence that keeps a file clean.

1. Work out cash to close. Get the Loan Estimate and build the formula above.

2. Run the contribution test. Check occupancy, unit count and LTV. If a 5% own-funds minimum applies, document that money first.

3. Confirm the donor. Make sure the donor fits the lender’s definition before the gift is sent.

4. Get a signed gift letter. It names the donor, address, phone number and relationship to you. It states the amount and says no repayment is required. It should also say whether the money is for the down payment, closing costs or both.

5. Document the transfer. The lender must see that the donor’s account holds enough, or that the gift has already landed in your account or with the closing agent. Depositing cash from a donor’s hand is the classic problem, because it leaves no trail.

6. Watch the Closing Disclosure. The CFPB’s integrated disclosure guide says the Closing Disclosure must reach you three business days before closing, and it includes a “Calculating Cash to Close” section. Compare it to your most recent Loan Estimate. If the cash to close moved, ask why.

Late changes in gift timing or paperwork can threaten the closing date. A gift that arrives smaller or later than planned is the usual culprit.

How Does the Appraisal Change the Math?

The appraised value drives LTV. If the appraisal comes in low, LTV rises. That can push a file over the 80% line, or change which contribution test applies. For a one-unit primary home this rarely changes whether a gift can cover everything. For a duplex or second home, it can change the own-funds requirement. Ask the loan officer how a low value would reshape your cash to close before you lock in a gift amount.

Mortgage insurance is the other piece of the picture. It is required above 80% LTV, can be cancelled on request at 80% of the original value with a good payment history and no subordinate liens, and must end automatically at 78%. A bigger down payment, gifted or not, lowers the loan balance and can trim that cost.

Key Terms Defined

Cash to close: The total money you must bring to closing after credits and deposits, shown on page 3 of the Closing Disclosure.

Minimum borrower contribution: The share of the price that must come from your own funds, not a gift, in certain loan types.

LTV (loan-to-value): The loan amount divided by the appraised value or price, whichever is lower.

Gift of equity: A seller credit shown on the settlement statement, not a cash transfer.

Interested party: A seller, builder, agent or other person with a stake in the sale.

Questions to Bring to Your Loan Officer

• Does my property type and LTV trigger an own-funds minimum?
• Does this lender apply any limit on gift size beyond the agency rules?
• What must the gift letter say, and when must the funds be in place?
• How will my earnest money be sourced alongside the gift?
• If the appraisal comes in low, how does cash to close change?

Gift tax questions belong to the donor and their tax adviser.

If you are buying a home and want to see whether conventional loan programs fit your file, Lendmire can help you compare the options and what each one asks of the file.

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.

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

References

1. CFPB Closing Disclosure explainer

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

3. Fannie Mae Selling Guide Announcement SEL-2023-08

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

5. CFPB TILA-RESPA Integrated Disclosure guide to form