The Quick Read: Family gift money is allowed on a conventional second home purchase, but it comes with a catch that a primary residence does not carry. When your loan-to-value ratio (LTV, the loan as a percentage of the home’s value) is above 80%, you must put in 5% of the price from your own funds first. A gift can then cover the rest of the down payment, closing costs and reserves. At 80% LTV or below, a gift can cover the whole thing. Gifts are not allowed at all on investment property. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Key Takeaways
- A second home can accept gifts. The investment-property category cannot.
- Above 80% LTV, the first 5% of the price must come from your own verified funds.
- At 80% LTV or below, the own-funds minimum drops away.
- Donors are limited to relatives and people with a family-type relationship. Friends, builders and agents generally do not qualify.
- A gift of equity from a seller can cover down payment and closing costs, but it cannot count toward reserves.
- The lender documents the donor’s money and the transfer, not just a signed letter.
Why a Second Home Gets Stricter Treatment
A second home is a higher-risk loan than the house you live in, so the lender wants more of your own skin in the game. That is the whole logic behind the own-funds rule.
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.
If money gets tight, borrowers tend to protect the home they sleep in first. A vacation house comes second. Lenders know this, so the agency rules ask for more equity and more of your own cash.
The ceiling shows the difference. On a one-unit principal residence with a fixed rate, conventional leverage runs up to 97% LTV for first-time buyers, which means 3% down. Otherwise it is 95%. A second home tops out at 90%. Across the wholesale programs Lendmire places files with, that gap is the main reason second-home files feel tighter than primary-residence files. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
The low-down-payment programs built for owner-occupants, such as HomeReady and Home Possible, are primary-residence products. They do not carry over to a second home.
Many buyers get tripped up here. They hear that gifts can fund 100% of a conventional down payment. That is true for many primary-residence purchases. It is not true for a second home above 80% LTV. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
What Counts as a Second Home
Gift rules only help you if the property qualifies as a second home in the first place. Under Fannie Mae’s occupancy rules, a second home must meet these tests:
- You occupy it for some part of the year.
- It is a one-unit dwelling.
- It is suitable for year-round use.
- You have exclusive control of it.
- It is not a timeshare or rental arrangement.
- No management firm controls who occupies it.
A vacation condo in a rental pool fails the test. So does a property where a management company decides who stays. Those fall into investment treatment, and gifts are not allowed there.
One more point matters for your budget. If the lender sees that you might rent the home out now and then, the loan can still be a second home. But that rental income cannot be used to help you qualify. The full payment on the second home counts in your debt-to-income ratio, which is your monthly debts divided by your monthly income.
If you want to see how this loan fits within the larger menu, Lendmire’s conventional loan programs page lays out the basics. The rest of this article stays on the gift question.
The Own-Funds Rule, Step by Step
The rule has one trigger: whether your LTV is above 80%. Fannie Mae’s guide on personal gifts lets a borrower use a gift on a principal residence or second home. It can fund all or part of the down payment, closing costs or reserves. It is subject to a minimum contribution from the borrower.
Here is how that plays out.
1. Decide the occupancy. Confirm the home meets the second-home tests above.
2. Pick your leverage. The Fannie Mae Eligibility Matrix sets the ceiling for a one-unit second home purchase at 90%. Check the current Matrix, since agencies update it.
3. Find your own-funds number. At 80% LTV or below, no minimum contribution from your own funds is required on a second home. Above 80%, you need 5% of the price from your own funds.
4. Document your own funds. These are verified assets in your name, such as savings or brokerage accounts. They must be sourced like any other asset.
5. Layer in the gift. After your 5% is in, a gift can supplement the rest of the down payment, closing costs and reserves.
6. Run it through underwriting. The automated findings decide reserves and whether the file clears. Program figures are subject to lender guidelines and full file review.
Notice what the rule does not say. It does not say the gift has to be small. It says your own money has to go in first.
Worked scenarios (percentages only)
| Scenario | Your own funds | Gift | Result |
|---|---|---|---|
| 90% LTV | 5% of price | Up to 5% | Own-funds minimum met |
| 85% LTV | 5% of price | Up to 10% | Gift covers the remainder |
| 80% LTV | Any amount | Up to 20% | No minimum from you |
| 90% LTV, gift only | 0% | 10% | Does not meet the 5% rule |
The last row is the one that surprises people. Parents who offer to cover the full 10% down payment on a 90% LTV second home run into the own-funds rule. You need to show your own 5% first. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
What a low appraisal does
The appraisal sets the value used for LTV. Say you plan 80% LTV, and the home appraises lower than the contract price. Your LTV rises. If it crosses 80%, the 5% own-funds rule kicks in, and a plan that was all-gift now needs your own cash. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
This follows from how the rule works rather than a separate guideline. It is still worth planning for. Build a little cushion into your own savings so a low appraisal does not derail the file.
Who Can Give and Who Cannot
Conventional donors are limited to relatives and people with a family-type tie. The same personal gifts guide lists acceptable donors this way:
| Generally acceptable | Generally not acceptable |
|---|---|
| Spouse, child or dependent | Friends and coworkers |
| Anyone related by blood, marriage, adoption or guardianship | The builder or developer |
| Domestic partner or the partner’s relative | Your real estate agent |
| Fiancé or fiancée | Anyone affiliated with an interested party |
| Former relative or godparent |
The key line is the interested-party ban. The donor cannot be, or be affiliated with, the builder, developer, agent or another party with a stake in the sale.
Freddie Mac’s rules are substantively parallel. Its Seller/Servicer Guide, Chapter 5501 covers gifts in the section on other sources of funds. It allows gifts that do not have to be repaid from a related person, a business that person owns, a trust the person set up, or the person’s estate. Which agency’s rules apply depends on where your loan is delivered, so confirm that with your loan officer.
Edge cases on the donor side
- A seller as donor. Agency rules now permit a seller who is also an acceptable donor, as long as the seller is not affiliated with another interested party. A seller who is a builder, developer or agent is out.
- Estate or trust gifts. Gift money can come from the estate of an acceptable donor or a trust the donor established.
- The close friend. There is no general category for a close friend. The list is built around family-type ties.
- The co-resident donor. Under agency rules, a gift can count as your own funds when the donor has lived with you for the past year. That exception is built around a shared principal residence. It does not help when the donor will not live in the second home, so do not plan around it.
- Special-occasion gifts. Exceptions for things like wedding gifts generally do not extend to second homes. Check the current guide before you count on one.
Gift of Equity on a Second Home
A gift of equity is a credit from the seller to you, built into the sale. A parent selling you a vacation cabin below market value is the classic example. The difference between the price and the home’s value becomes your gift.
Fannie Mae’s gift of equity section allows it on principal residence and second home purchases. It can fund all or part of the down payment and closing costs, including prepaids. The same donor and minimum-contribution rules apply.
There is one hard limit. A gift of equity cannot be used for reserves.
Here is how that looks in practice. Picture a buyer purchasing a family cabin at 90% LTV. The parent sells it at a price that includes a gift of equity worth 5% of the price. The buyer still needs 5% from their own funds. The gift of equity covers the other 5%, but it cannot also pad the reserve balance the file may need. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Paperwork matters here. The gift of equity should appear in the purchase contract and on the settlement or closing statement. The appraisal supports the value, and the value determines how much equity is actually being gifted.
Documenting the Gift: The Paper Trail
A gift letter alone is not enough. The lender documents the donor’s funds and the transfer too.
The gift letter. It generally states the donor’s name, address and phone, the dollar amount, and that the gift does not have to be repaid. For a trust or estate, the trustee or authorized representative signs.
The transfer. If the gift is not already deposited in your account, the file needs evidence of the transfer from the donor. Lenders look for a clear trail from the donor’s account to yours.
The source. Expect the lender to ask where the donor’s money came from, especially if a large deposit appears out of nowhere.
What if the money is already in your account?
This happens often. A parent wires the money before anyone asks for paperwork. The fix is usually simple. Get the gift letter signed, and gather the donor’s statement showing the withdrawal and your statement showing the deposit. The trouble comes when the money was handed over in cash. A cash deposit with no paper trail is hard to document and can sink the gift portion of the file.
A simple gift timeline
1. Before you write an offer. Decide how much will be your own funds and how much will be gifted. Work backward from your target LTV.
2. Before application. Move the money early if possible. Keep your own 5% in an account that shows steady history.
3. At contract. If a gift funds earnest money, document the transfer for that deposit as well.
4. Before closing. Provide the signed letter and transfer evidence. Hold off on large unexplained moves in any account.
What Gifts Can and Cannot Cover
| Use of funds | Gift allowed? | Notes |
|---|---|---|
| Down payment | Yes | After the 5% own-funds minimum, above 80% LTV |
| Closing costs | Yes | Includes prepaids |
| Reserves | Yes (cash gift) | Not a gift of equity |
| Own-funds minimum | No | Must be your verified assets |
| Investment property | No | Gifts not allowed |
Gifts can count toward reserves once the minimum contribution is met. Reserves are the cash left over after closing, which the lender wants to see as a cushion. The amount for your loan comes from the automated underwriting findings, so ask your loan officer rather than guessing.
Reconciling the Conflicting Advice You Will Find Online
Search results disagree on this topic. Some pages make second-home gifts sound nearly off-limits. Others make them sound just like primary-residence gifts.
Neither is quite right. The agency text says gifts are permitted on second homes. The restriction is the own-funds minimum above 80% LTV. That minimum is also the main reason the second-home version of the rule feels stricter than the primary-residence version. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
When two sources conflict, go to the primary source. The agency guide wins over a summary page. Lenders can also add their own overlays, so your loan officer’s answer on your specific file carries the most weight.
Mistakes That Delay or Sink a File
- Treating the gift as a loan. Any expectation of repayment disqualifies it. A donor who quietly expects the money back creates a problem.
- Counting on friends. A generous friend cannot be your donor on a conventional loan.
- Skipping your own 5%. Above 80% LTV, a gift-only plan does not clear the minimum.
- Moving the money through the wrong party. A gift routed through a seller-affiliated party raises interested-party issues.
- Planning around rental income. If the home will be controlled by a rental program, it is not a second home. Rental income also cannot help you qualify.
- Ignoring the appraisal. A low value can raise your LTV and bring back the own-funds rule.
- Assuming a gift of equity covers reserves. It does not. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
When a Gift Is Not the Right Tool
Sometimes a gift is the wrong fit. If the donor is a friend, if you cannot document your own 5%, or if the donor cannot show a clear trail, look at other sources of funds.
If you already own a home, one option is borrowing against it. Lendmire’s piece on whether a conventional cash-out refinance can fund another home purchase walks through how that works. It has its own seasoning and leverage rules, so it is not a free pass.
Texas owners face an extra layer, covered in Lendmire’s article Conventional Cash-Out Refinance Rules for a Texas Second Home.
Another option is simply a larger own-funds contribution. Reaching 80% LTV or below through savings and gifts together removes the own-funds minimum. A lower LTV also tends to reduce mortgage insurance, which conventional loans require above 80% LTV. That insurance can be requested for cancellation at 80% of the original value and ends automatically at 78%, under the Homeowners Protection Act. Pricing adjustments also tend to be lighter at lower leverage.
Key Terms Defined
LTV (loan-to-value): The loan amount as a percentage of the home’s price or appraised value, whichever is lower.
Own funds: Verified assets in your own name, such as savings, that are not a gift or borrowed money.
Gift of equity: A credit from the seller to the buyer, built into the sale, that reflects the gap between the price and the home’s value.
Reserves: Cash left in your accounts after closing, which acts as a cushion if income dips.
Interested party: Someone with a stake in the sale, such as the builder, developer or real estate agent.
Second home: A one-unit property you occupy for part of the year, with exclusive control, that is not a rental or timeshare.
Frequently Asked Questions
Can my parents give me the entire down payment on a second home?
It depends on your LTV. At 80% LTV or below, a gift can cover the whole amount. Above 80%, you must put in 5% of the price from your own funds first, and the gift can then cover the rest. Your parents also have to qualify as acceptable donors, which relatives do. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Can a friend gift me money for a conventional second home?
Generally not. Conventional donors are limited to relatives and people with a family-type relationship, such as a domestic partner, fiancé or godparent. A close friend does not fit a listed category. Check the current agency guide for your loan, and ask your loan officer how the lender reads it.
Can I use a gift for reserves on a second home?
A cash gift can count toward reserves once you have met the minimum contribution. A gift of equity cannot. The reserve amount for your loan comes from the underwriting findings, so confirm it with your loan officer early.
Does rental income from the home help me qualify?
No. If the lender identifies rental income, the loan can still be a second home, but that income cannot be used to qualify. The full payment on the second home counts in your debt-to-income ratio. A home in a rental pool, or one where a management firm controls occupancy, does not meet the second-home definition.
What if the gift is already in my account when I apply?
That is workable if it is documented. Expect to provide the signed gift letter plus evidence of the transfer from the donor. Cash handed over without a trail is the hard case, since the lender needs to see where the funds came from.
Next Steps
Start with your target LTV, because that one number decides whether the own-funds rule applies. Then line up your own 5% in a seasoned account, confirm your donor qualifies, and get the letter and transfer evidence in order before you apply.
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. All 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 B2-1.1-01 Occupancy Types
2. Fannie Mae Selling Guide B3-4.3-04 Personal Gifts
3. Fannie Mae Eligibility Matrix
4. Freddie Mac Seller/Servicer Guide, Chapter 5501
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: Conventional Cash-Out Refinance Average Closing Costs on a Second Home · Can a Conventional Cash-Out Refinance Close at Your Home? · Conventional Cash-Out Refinance Fees for a Second Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.