The Quick Read: On a one-unit home you will live in, a conventional loan can take no cash from the buyer’s own funds. An eligible gift can cover the whole down payment and closing costs. Own money becomes mandatory only on specific property types: two- to four-unit homes and second homes above 80% loan-to-value. Gifts are not allowed at all on an investment property. Reserves and gifts of equity are the other places where the answer changes.
That is the short version. The rest of this piece walks through how the loan is underwritten, what the gift can pay for, where the rule breaks, and how a file gets built so it does not stall.
Key Takeaways
- One-unit primary residence: no minimum contribution from the buyer’s own funds, at any leverage. All funds can come from a gift.
- Two- to four-unit primary residence or second home above 80% LTV: the standard minimum is 5% from the buyer’s own funds.
- Investment property: gifts are not allowed.
- A gift of equity can fund the down payment and closing costs, not reserves.
- The paper trail decides whether the gift counts. A letter alone is not enough. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
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.
Key Terms Defined
Loan-to-value (LTV): The loan amount divided by the home’s value. A 95% LTV means a 5% down payment. Eligibility at any LTV is subject to lender guidelines and a complete review of property type, leverage, and credit.
Minimum borrower contribution: The share of the purchase the buyer must pay from their own funds before a gift can be used.
Gift of equity: A family seller sells below market value, and the difference counts as the buyer’s equity. It shows up as a credit on the settlement statement, not as cash.
Reserves: Money left in the bank after closing, measured in months of housing payments.
Interested party: The seller, builder, developer or real estate agent. These parties cannot be the source of a gift.
Acceptable donor: A person or entity the agency rules allow to give a gift. More on that below.
What Is the Starting Point for a Gift-Funded Purchase?
The envelope is simple. Across the wholesale programs placed through Lendmire, a conventional purchase on a principal residence runs up to 97% LTV (3% down) when at least one borrower is a first-time buyer. Otherwise it runs up to 95% LTV (5% down). Two- to four-unit principal residences go to 95%. Second homes go to 90%. Investment property tops out at 85% on one unit and 75% on two to four units. Subject to lender guidelines and full file review, those are the leverage limits.
Mortgage insurance applies above 80% LTV. The borrower may ask to cancel it at 80% of the original value, with good payment history and no decline in value. The servicer must end it automatically at 78%. That is the Homeowners Protection Act, and it matters here because a bigger down payment, gift-funded or not, can bring the loan under 80% and remove the insurance altogether. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total debt-to-income ceiling of 50%. A gift does not change those tests. It only changes where the cash comes from.
Lendmire arranges these through its conventional loan programs, and the buyer’s occupancy plan is the first thing that sets the gift rules.
How Is a Gift-Funded Conventional Loan Underwritten?
The deal works through the same checks every time. Here is the order the work follows.
1. Set the program and run the tests. The lender fixes the LTV, the unit count and the occupancy. Those three facts decide whether any own-funds contribution applies.
2. Confirm the donor is acceptable. The lender checks who is giving and how they are tied to the buyer. A seller, builder or agent gift fails here.
3. Collect the gift letter. It is signed by the donor. It shows the donor’s name, address, phone number and relationship to the buyer, the gift amount, and a statement that no repayment is required.
4. Trace the money. The lender must verify that enough funds to cover the gift are in the donor’s account or have already moved to the buyer’s account. Some files also route the gift straight to the closing agent.
5. Tie the gift into cash to close. The gift joins the total cash needed. The buyer’s own deposits, if any, are verified the usual way.
6. Reconcile at settlement. The settlement statement should match the letter and the transfer trail. A mismatch in amount is a common reason for a request-for-more-documents loop.
The Fannie Mae rule behind steps 1 through 4 sits in Selling Guide section B3-4.3-04. It says gift funds can pay all or part of the down payment, closing costs or financial reserves, subject to the minimum borrower contribution rules. On a one-unit principal residence, that minimum is zero.
The CFPB advises borrowers with gift money in the down payment to ask the loan officer early whether gifts are allowed with the chosen loan. Good habit. Ask before the contract is signed.
Does the Answer Change by Property Type?
Yes. Occupancy and unit count are the whole game. This table shows the Fannie Mae treatment on the standard conventional program.
| Property | LTV | Own funds required? |
|---|---|---|
| One-unit primary | Any | No |
| 2–4 unit primary | 80% or less | No |
| 2–4 unit primary | Over 80% | 5% from own funds |
| Second home | 80% or less | No |
| Second home | Over 80% | 5% from own funds |
| Investment property | Any | Gifts not allowed |
Why does the rule exist? The agencies want some borrower stake in a property that carries more risk than a one-unit home you live in. The buyer of a duplex or a second home is expected to show some of their own money. After that minimum is met, gifts can cover the rest of the down payment, closing costs and reserves.
Gift-fund rules for two- to four-unit primaries can differ depending on which agency’s guidelines the loan follows, so a buyer planning a duplex should have the loan officer confirm which rules the file runs under. The same goes for second homes at higher loan-to-value ratios on the Freddie Mac side: confirm the own-funds minimum against the current Guide before relying on it. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
What Can Gift Money Pay For?
On second homes and multi-unit primaries, gift money can cover the down payment, closing costs, and reserves once any minimum borrower contribution is met, but gifts are not allowed on investment property.
| Use | Standard gift | Gift of equity |
|---|---|---|
| Down payment | Yes | Yes |
| Closing costs | Yes | Yes |
| Reserves | Yes | No |
| Paying off debts | Not intended | Not applicable |
In the table above, “No” under reserves applies to a gift of equity. A gift of equity is a credit on the purchase price, not cash the buyer holds in an account, so it cannot count toward reserves. If the file needs reserves, they have to come from the buyer’s own funds or from a standard cash gift.
The buyer should also check reserves early. Not every file needs them, but when the automated finding or the property type calls for them, a fully gifted purchase can leave the buyer with a cash-to-close that is covered and a reserve line that is not.
How Do Three Common Buyer Situations Play Out?
These are described in percentages and plain words, not dollar amounts.
Fully gifted one-unit purchase. A first-time buyer takes the 97% LTV option. The 3% down payment and the closing costs both come from a parent’s gift. Under the Fannie Mae rule, no own-funds contribution is required. The file needs a clean gift letter, proof the funds left the donor’s account, and a settlement statement that matches. Mortgage insurance applies because LTV is above 80%. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Partly gifted purchase. A buyer puts 5% down on a one-unit home. A relative gives half of the needed cash, and the buyer covers the rest from savings. Both sources get verified. The savings show up on the bank statements. The gift shows up on the letter and the transfer trail. Nothing exotic, but both trails have to be clean. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Duplex with an own-funds minimum. An owner-occupant buys a two-unit home at 95% LTV. The standard Fannie Mae rule calls for 5% of the price from the buyer’s own funds. Once that is in, gifts can supplement the remaining down payment, closing costs and reserves. Here is the catch: a gift alone does not finish the job. On the HomeReady program, the own-funds minimum on a two- to four-unit above 80% LTV is 3% instead, per the HomeReady guide section B5-6-02 and product page. HomeReady and Home Possible carry an income limit of 80% of area median income, so eligibility depends on the borrower’s income. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Who Can Give and Who Cannot?
The acceptable donor list is narrower than most buyers expect. Generally it covers relatives by blood, marriage, adoption or legal guardianship, domestic partners and fiancé(e)s, and the trust or estate of an eligible donor. A friend is not on the standard list.
Freddie Mac widened its definition in a 2022 Guide bulletin. The bulletin expanded “Related Person” to cover unrelated people with close, family-like ties to the borrower. It also added trusts and estates as donors and allowed pooled funds from the borrower and other related persons under certain conditions. So the donor test can differ by agency, which is another reason to confirm the agency path early.
The donor cannot be, or be affiliated with, the builder, developer, real estate agent or any other interested party. Seller money is a seller credit, with its own limits, not a gift.
A household donor is a special case. A gift from an acceptable donor who has lived with the borrower for the last 12 months counts as the borrower’s own funds toward the minimum contribution. Both people must use the home as their principal residence. That can matter on a duplex purchase, where an own-funds minimum applies.
Where Does the General Rule Break?
Named edge cases, in the order they come up on files:
- Investment property. Gifts are not allowed. This is the cleanest break.
- Second home above 80% LTV. The 5% own-funds minimum applies.
- Two- to four-unit primary above 80% LTV. The standard minimum is 5%. HomeReady lowers it to 3%.
- Gift of equity used for reserves. Not allowed. It can fund the down payment and closing costs only.
- Wedding gifts. Freddie Mac allows these on a primary residence from people who are not otherwise eligible donors, with a marriage certificate and evidence of deposit.
- Employer assistance. Fannie Mae treats this under a separate topic. It is not a personal gift, so do not paper it like one.
- Gift of equity paperwork. The file needs a signed gift letter and a settlement statement that lists the gift of equity. A gift of equity from an acceptable donor is not treated as an interested party contribution, per the Fannie Mae gift of equity rule. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Gift, Gift of Equity or Seller Credit?
| Item | Gift | Gift of equity | Seller credit |
|---|---|---|---|
| Source | Acceptable donor | Family seller | Seller |
| Form | Cash transfer | Credit on settlement statement | Credit toward costs |
| Reserves | Can fund | Cannot fund | Not a reserve source |
| Document | Gift letter, transfer trail | Gift letter, settlement statement | Purchase contract |
A gift of equity lowers the effective price paid in cash. The appraisal still supports the market value used to figure LTV. This is why a family sale with a large equity gift is not the same as a cash gift, even though the buyer ends up with less cash to bring.
What Mistakes Stall a Gift-Funded File?
Most problems are paper problems. Operators see the same few.
- Late, unexplained deposits. A big cash gift landing in the buyer’s account right before applying draws questions. Deposit early and keep the donor’s statement showing where it came from.
- Letter amount does not match the transfer. If the letter says one figure and the money moved is another, the lender asks for a corrected letter or more proof.
- No transfer trail. The lender must see enough funds in the donor’s account or already in the buyer’s account. A letter is not proof of movement.
- Wrong donor. A friend, a seller or an agent who wants to help. These gifts do not count.
- Gift of equity counted as reserves. It cannot be.
- Assuming a gift covers a duplex. Own-funds minimums on two- to four-units and second homes above 80% LTV catch buyers who planned an all-gift purchase.
- Repayment language. A repayment obligation would turn the gift into debt and change the debt-to-income picture. That is why the letter must say no repayment is required. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
What Does the Buyer’s Decision Look Like in Practice?
Start with occupancy. If the home is a one-unit primary, a gift can fund everything, and the choice becomes how much to put down. A larger down payment can bring LTV closer to 80%, which cuts or removes mortgage insurance. A smaller one keeps more cash in the bank. Neither is wrong.
If the plan is a duplex or a second home, expect to bring own money. Count the 5% before counting the gift. If the buyer qualifies for HomeReady, ask whether the 3% minimum on a two- to four-unit applies.
Then check donors. Is the person giving an acceptable donor? Is the gift one lump sum, or several donors? Each donor needs a letter and a trail.
Then check reserves. A gift of equity cannot fill them. A standard gift can.
A gift is not a loan, so it adds no monthly payment. That is the point of the non-repayment statement. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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. Program figures here are subject to lender guidelines and full file review, and nothing in this piece is a commitment to lend.
Frequently Asked Questions
Can I really buy with no money of my own?
On a one-unit principal residence, yes under the Fannie Mae gift rules: no minimum from your own funds is required, at any LTV. The whole down payment and closing costs can come from an eligible gift. The file still has to pass the credit, ratio and appraisal tests, and reserves may still be a question.
Does it matter if I use the 3% option or the 5% option?
The 97% LTV option is for first-time buyers on a one-unit home with a fixed rate. The 95% option covers other buyers and two- to four-unit homes. Either way, a gift can fund the down payment on a one-unit primary. Mortgage insurance applies above 80% LTV in both cases. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Can a friend give me the money?
Usually not. Standard donors are relatives, domestic partners, fiancé(e)s, and eligible trusts or estates. Freddie Mac has widened its definition to include some unrelated people with family-like ties, so the answer can differ by agency. A seller, builder or agent can never be the donor.
Can several people each give part of the gift?
It depends on the donors and the agency. Each donor must be acceptable, and each gift needs its own letter and transfer trail. Freddie Mac also allows pooled funds from the borrower and other related persons under certain conditions. Ask the loan officer how the file would be set up before the money moves.
Does the IRS gift limit decide whether I qualify?
No. Tax treatment is separate from underwriting. The lender cares about donor eligibility, the letter and the transfer trail. For tax questions, speak with a qualified tax professional.
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.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide B3-4.3-04, Personal Gifts
2. CFPB, Submit documents and answer requests from the lender
3. Fannie Mae HomeReady mortgage product page
4. Freddie Mac Guide Bulletin 2022-25
5. Fannie Mae Selling Guide B3-4.3-05, Gifts of Equity
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much a Piggyback Saves a First-Time Conventional Loan Buyer vs PMI · How to Lower Cash to Close With Gift Funds on a Conventional Loan · How to Qualify for a Low Down Conventional Loan Using Gift Funds
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.