The Quick Read: Gift money is allowed on a conventional loan for a home you live in or a second home, but only from an acceptable donor. That means a relative, or someone with a close, family-like tie to you. The donor can’t be connected to the sale, and the lender has to document the gift with a signed letter and a clear transfer trail. Gifts are not allowed on investment property.
Key Takeaways
- Gifts can pay for the down payment, closing costs, or reserves, depending on the loan.
- Donors must be relatives or have a family-like relationship with the borrower.
- The builder, agent, or any other party with a stake in the sale can’t give.
- Some loans still require 5% of the borrower’s own funds. Which ones depends on occupancy, unit count, and leverage.
- Every gift needs a signed letter and proof the money moved.
What Counts as a Gift on a Conventional Loan?
A gift is money you receive that you never have to repay. That is the whole definition, and it drives most of the rules below.
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.
Under the Fannie Mae Selling Guide, a borrower buying a principal residence or second home may use a personal gift from an acceptable donor. The gift can cover all or part of the down payment, closing costs, or financial reserves. Freddie Mac’s guide follows a similar structure: gift funds must not need repayment and must come from a “Related Person.”
Fannie Mae and Freddie Mac set these rules, not the lender down the street. Across the wholesale programs Lendmire works with, the pattern is consistent: the agency rule is the floor, and a given lender may add its own conditions on top. That is why the first conversation with your loan officer should include the gift, not the last one.
Gifts are one piece of a larger purchase file. Lendmire’s conventional loan programs are arranged through wholesale lenders, and the leverage limits on those programs decide how much cash the file needs in the first place. On a principal residence, purchase leverage reaches 97% for a first-time buyer on a fixed rate and 95% otherwise, so the down payment can be as small as 3% or 5%. A gift often fills that gap.
Who Can Give You Gift Money?
Acceptable donors fall into two groups: relatives and people with a family-like relationship to you. Friends, coworkers, and employers generally don’t qualify on a conventional loan.
Relatives include your spouse, child, or other dependent, and anyone related by blood, marriage, adoption, or legal guardianship. Parents, grandparents, siblings, aunts, uncles, and in-laws all fit here.
Family-like donors are non-relatives with a real familial bond. Fannie Mae’s 2022 announcement widened this list to include a former relative, a relative of a domestic partner, and a godparent. Domestic partners and fiancé(e)s also fall into this category. Freddie Mac broadened its “Related Person” definition in a 2022 bulletin to cover unrelated individuals with close, family-like ties to the borrower.
Here is how some borderline donors tend to sort out:
| Donor | Usually acceptable? | Why |
|---|---|---|
| Parent or grandparent | Yes | Relative by blood |
| Stepparent | Yes, typically | Related by marriage |
| Fiancé(e) or domestic partner | Yes | Family-like relationship |
| Godparent | Yes | Named in the expanded list |
| Former in-law | Often | Former relative category |
| Close friend | Rarely | Needs a family-like tie, documented |
| Employer or coworker | No | Not a family relationship |
| Real estate agent, builder | No | Interested party |
“Often” and “typically” are doing real work in that table. Lenders review the relationship, and a donor who is a “close friend” with no family-like bond will usually be turned down on a conventional file. If your donor sits in a gray area, raise it before you write an offer.
Estates and trusts can also give. Fannie Mae’s 2023 announcement allows gift funds to come from the estate of an acceptable donor or a trust the donor set up. Freddie Mac’s bulletin made estates and trusts of Related Persons eligible too.
Who Can’t Give? (And the Seller Question)
The donor can’t be, or be affiliated with, the builder, developer, real estate agent, or any other interested party in the transaction. The logic is simple. Money from someone who profits from the sale is really a price reduction in disguise, and the interested party limits exist to stop that.
There is one narrow exception. A seller who would otherwise be an acceptable donor, such as a parent selling you their home, may give a gift, and that seller can’t be tied to any other interested party. This is the setup behind a gift of equity.
A common mix-up: a seller concession is not a gift. A concession is the seller agreeing to pay some of your closing costs as part of the deal, and it counts against interested party contribution limits. A gift from a relative sits outside those limits. If a motivated stranger-seller wants to “gift” you money, that’s a concession, and the rules treat it differently.
What Can a Gift Pay For, and When Do You Still Need Your Own Money?
On a one-unit principal residence, a gift can cover everything: down payment, closing costs, and reserves, with no minimum from your own funds. Fannie Mae’s personal gifts section lays out the contribution rules by leverage and occupancy.
| Situation | Own funds required? |
|---|---|
| One-unit primary home, 80% LTV or less | No |
| One-unit primary home, above 80% LTV | No |
| Two- to four-unit primary home, above 80% LTV | 5% of your own funds |
| Second home, above 80% LTV | 5% of your own funds |
| Investment property | Gifts not allowed |
Read that table against the leverage ceilings. A two- to four-unit principal residence can reach 95% leverage, and a second home can reach 90%. In both cases, once you go above 80%, you need to bring 5% of your own money, and a gift can then supplement the rest. At 80% or below, a gift can cover the whole thing. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
One-unit buyers have the most flexibility. A first-time buyer at 97% leverage can, in many cases, fund the down payment entirely from a gift. Whether it works for your file depends on the loan program, credit, ratios, and reserves, all subject to lender guidelines.
Special programs. Fannie Mae’s HomeReady program allows gifts, grants, and Community Seconds with no minimum personal contribution on one-unit homes. HomeReady and Freddie Mac’s Home Possible carry an income limit of 80% of area median income. Under Freddie Mac’s Home Possible guidance, other eligible sources of funds can be used, though a gift or grant from a seller acting as originating lender requires a minimum from the borrower’s own funds. Multi-unit rules for these programs are different, so confirm them before you plan around a gift.
The 12-month roommate exception. If a donor has lived with you for the past 12 months and you both will use the home as your principal residence, the gift can count as your own funds. That can matter on a two- to four-unit purchase. Expect extra documentation of shared residency.
Step by Step: How a Gift Moves Through the Loan
The process is mostly about order and paper. Here is the sequence that tends to work best.
1. Tell your loan officer early. The gift gets entered in the automated underwriting system with the donor’s relationship, since the system has a field for each donor type. Surprises late in the file are what cause problems.
2. Check the donor against the list. Is the person a relative or family-like? Do they have any tie to the builder, agent, or seller?
3. Check leverage, unit count, and occupancy. These decide whether you need your own funds.
4. Get the gift letter. It is signed by the donor and states the amount, that no repayment is expected, and the donor’s contact details and relationship to you.
5. Document the money. The lender must verify the donor had the funds or that they landed in your account. Acceptable evidence includes the donor’s check and your deposit slip, a withdrawal slip and deposit slip, or an electronic transfer from the donor’s account to yours or to the closing agent. Payment apps work only if the file shows the money moving directly from the donor’s bank account to yours.
6. If the money hasn’t moved by closing, the lender documents that the donor gave the closing agent a certified, cashier’s, or other official check.
7. Watch for large deposits. Unverified funds can’t be used for the down payment, closing costs, or reserves. Fannie Mae’s depository accounts section is the rule behind that. If a gift lands in your account, keep the transfer record and expect the lender to ask about it.
Notice what the letter does not do on its own. A signed letter is necessary, but it isn’t enough. The lender still has to see the money.
What a Gift Letter Needs to Say
Think of the letter as a short, plain statement. It should include:
- The donor’s name, address, and phone number
- The donor’s relationship to you
- The exact amount of the gift
- A statement that the money is a gift and doesn’t have to be repaid
- The property address, if known
- The donor’s signature
Your lender will usually supply a template. Use theirs, since lender overlays can ask for more detail than the agency minimum.
Gift of Equity: A Related but Different Tool
A gift of equity is the seller giving you part of their equity as a credit in the purchase. It is common when parents sell a home to a child below market value.
Under Fannie Mae’s gifts of equity section, it is permitted for principal residence and second home purchases. It can fund all or part of the down payment and closing costs, including prepaid items. It cannot be used for financial reserves. When an acceptable donor gives it, the gift isn’t subject to interested party contribution limits. The file needs a signed gift letter and a settlement statement that shows the gift of equity.
Two practical points. First, talk to your loan officer before the contract is signed, since the structure shapes the purchase price on the paper. Second, the sale price less the credit still has to be supported by the appraisal like any other purchase.
Edge Cases Worth Knowing
Investment property. Gifts and gifts of equity aren’t allowed on investment property under either agency. If the home isn’t one you’ll occupy or use as a second home, a gift isn’t an option.
Wedding and graduation gifts. Freddie Mac’s guidance is more flexible on special-occasion gifts, and they can come from people who wouldn’t otherwise qualify. The timing windows are specific, so ask your lender which ones apply to your file instead of assuming.
Pooled gifts. Several relatives can each give, and each gift is documented separately. Expect a letter and a transfer trail per donor.
Refinances. Gifts of equity are a purchase tool. For a refinance, ask your loan officer how a gift deposited into your account would be treated, because the answer depends on the lender.
Loans disguised as gifts. A relative lending you the down payment informally is not a gift. If repayment is expected, it’s a debt, and it has to be disclosed and counted in your ratios. The CFPB’s guidance distinguishes a true gift from a third-party loan and says to tell your lender which funding option you’re using.
Lender overlays. Some lenders set rules stricter than the agencies, including higher own-funds requirements on certain loans. The agency rule tells you what’s possible. The lender’s overlay tells you what’s practical.
How a Gift Changes the Rest of the File
A gift reduces the cash you bring to the table, but it doesn’t change the loan underneath. Leverage above 80% still brings mortgage insurance. You can ask for cancellation at 80% of the original value with a good payment history, no subordinate liens, and no decline in value, and the servicer must end it automatically at 78%. Published typical annual premiums run roughly 0.58% to 1.86% of the balance. That is a range, not a quote.
A bigger gift means a bigger down payment and can mean a smaller loan balance. That can shift your ratios and the insurance line. Credit and ratios still apply: the wholesale conventional programs start at a 620 decision score, and the automated finding governs most files with a 50% total ratio ceiling. Lenders also look for undisclosed debt, since owing money to a relative on top of the mortgage changes your ability to repay.
Common Mistakes That Slow Down a File
- Telling the lender late. The gift shows up as an unexplained deposit.
- Using a donor who isn’t eligible. A friend or coworker is the classic example.
- Skipping the transfer proof. The letter alone isn’t enough.
- Moving money around. Shuffling funds between accounts creates new deposits to explain.
- Assuming a gift of equity can cover reserves. It can’t.
- Treating a seller concession like a gift. They follow different limits.
The fix for nearly all of these is the same: involve the loan officer before the money moves.
What to Do If Your Donor Is Turned Down
You have a few routes. A seller concession may cover some closing costs, within the interested party limits. A down payment assistance program may fill part of the gap, and some allow gifts alongside them. A relative’s loan can work only if it’s disclosed as debt and your ratios can carry it. And a different donor in the family may fit the rules. It’s the borrower’s choice, but the order matters: pick the route before you write the offer, not after.
Key Terms Defined
Gift letter: A signed statement from the donor giving the amount and relationship and confirming no repayment is expected.
Interested party: Anyone with a stake in the sale, such as the builder, developer, or real estate agent.
Gift of equity: A credit from the seller to the buyer that represents part of the seller’s equity in the home.
Reserves: Liquid funds left after closing, kept as a cushion against missed payments.
Own funds: Money that belongs to the borrower rather than a gift or grant.
Large deposit: A deposit big enough that the lender needs to trace where it came from.
What the Decision Looks Like in Practice
Picture two buyers. The first is buying a one-unit home as a first-time buyer, and a parent is giving the whole down payment. The file is simple: letter, proof of the transfer, and the lender confirming the donor is eligible. The gift can cover down payment, closing costs, and reserves, subject to lender guidelines.
The second is buying a two-unit home to live in one side, at leverage above 80%. A gift helps, but the borrower has to bring 5% of their own funds, and the gift supplements the rest. The same donor, the same love, a different outcome, because occupancy and unit count changed the rule.
So the decision isn’t whether a gift is allowed. It’s whether your donor, your property type, and your leverage fit together, and what your own funds need to be.
Frequently Asked Questions
Is there a limit on how much a relative can give me?
The guides don’t set a flat dollar cap on a gift. The limits come from your situation: on a two- to four-unit home or a second home above 80% leverage, you still need 5% of your own funds. The lender also verifies that the donor has the money, so the practical limit is what the donor can document. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Can a friend give me gift money for a conventional loan?
Rarely. The donor has to be a relative or have a close, family-like tie to you. A friend can qualify only if the relationship is documented as family-like, and lenders vary in how strictly they read that. Employers and coworkers generally don’t qualify.
Does the gift letter need to be notarized?
The agency guides call for a signed letter with specific content, not a notarization. Some lenders add their own requirements, so ask your loan officer which template they use and whether they want anything beyond the signature.
Can gift money cover my reserves?
A personal gift can cover reserves on a principal residence or second home, subject to the contribution rules. A gift of equity can’t be used for reserves. Reserve requirements themselves depend on the loan, the score, and the automated finding. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Can a parent who is selling me their home give me a gift?
Yes, in the narrow case where the seller is an acceptable donor and has no tie to any other interested party. That is usually done as a gift of equity, which appears on the settlement statement and can fund the down payment and closing costs.
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. If you are using an income-limited program, Lendmire’s article HomeReady Gift Fund Requirements for a Conventional Loan Buyer goes deeper on how gifts fit that structure. Program details 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 broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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
7. Fannie Mae Selling Guide B3-4.2-02, Depository Accounts
8. 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 Loan Income Requirements for a Home Purchase · Gift Funds vs Personal Savings for a Conventional Loan Down Payment · How to Finance a Vacation Home With a Conventional Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.