Can a Gift Fund the Down Payment on a Conventional Second Home?

The Quick Read: Yes, but the amount depends on loan-to-value (LTV), the loan balance divided by the home’s value. At 80% LTV or less, a gift can cover the whole down payment. Above 80%, you must put in at least 5% from your own funds, and a gift can cover the rest. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

That one line settles most questions. The details decide whether your file actually works. They cover who may give the money, what counts as “your own funds,” and why a low appraisal can change the answer overnight.

Lendmire arranges conventional loan programs through wholesale lenders. The gifted second-home down payment is one of the places where an ordinary-looking file gets tripped up. This guide walks through the rule, the exceptions, and the decisions on your side of the table.

What Does the Gift Rule Actually Say?

The rule has two tiers. At 80% LTV or less, no minimum comes from your own pocket. Above 80%, you need 5% of your own money first. After that minimum is met, gifts can supplement the down payment, closing costs, and reserves. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

That comes straight from the Fannie Mae Selling Guide section on personal gifts. It says a borrower on a principal residence or second home may use funds from an acceptable donor. At 80% LTV or less, all funds needed to complete the transaction can come from a gift. Above 80%, the 5% own-funds minimum applies. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

Freddie Mac’s rules match in substance. Gifts are eligible for a second home when the money does not have to be repaid and the donor is an acceptable person. Above 80% LTV, the borrower needs at least 5% from personal funds. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Here is how that sits next to the other occupancy types.

That last row is the only time investment property comes up here. Occupancy decides the leverage and the gift rules, and this article stays on the home you will use yourself.

How Much of the Down Payment Can Be Gifted?

At 80% LTV, all of it. At 85% LTV, up to 10% of the price. At 90% LTV, up to 5%. The percentages below are modeled on a one-unit second home, and your own 5% is measured against the purchase price. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Ninety percent is the ceiling for a one-unit second home across the programs Lendmire works with. The Fannie Mae Eligibility Matrix shows the same cap for one-unit second homes. So a 100% gifted down payment is possible only if you put down 20% or more. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Think about what the 5% means in practice. If you are buying with 10% down, half of that down payment must be yours. Family money cannot carry the entire deal. Plan the budget around that. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Here is a trap that catches buyers. Say you sign a contract planning exactly 20% down, with a gift covering it. The appraisal comes in below the price. Your LTV is now above 80%, because LTV is measured against value, not what you agreed to pay. The 5% own-funds rule switches on. Mortgage insurance enters the picture too. Build a cushion into your own savings before you count on a clean 80%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

What Counts as Your Own Funds?

Your own funds are money you earned, saved, or got from selling something you own. Think checking and savings, investment accounts, and sale proceeds. A family member’s money is a gift, not your own funds. That holds even if it sat in your account before you applied.

Lenders also differ in how they treat older deposits. Some want a paper trail on any large deposit. Ask your loan officer how your lender handles deposits before you shuffle money around.

Two other things do not count as your own money. A gift of equity can’t satisfy reserve requirements. A “gift” you plan to repay isn’t a gift at all. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Who Can Give the Gift?

For Fannie Mae, the donor is a relative, a fiancé or fiancée, or a domestic partner. “Relative” means a spouse, a child or other dependent, or anyone related by blood, marriage, adoption, or legal guardianship. Freddie Mac casts a wider net. Its Related Person definition was widened to include unrelated individuals with close, family-like ties to the borrower.

Freddie Mac has also moved on business donors. A Guide bulletin says the donor may be a business owned by a Related Person. The gift letter must state the ownership interest, and that person must sign it.

Who cannot give? Anyone with a stake in the sale. That includes the seller, the builder, the real estate agent, and anyone tied to them. Their money is a seller concession or credit, which follows different limits than a gift.

Some practitioners learn this the hard way. A “friend” who turns out to be your agent’s business partner gets a file sent back. Name the donor early, and let the lender approve the relationship before the money moves.

Gift, Gift of Equity, or Seller Credit?

These three get mixed up all the time. They work differently.

A gift of equity happens when a relative sells you the home below its value, and the difference counts toward your down payment. Both agencies treat it as a form of gift. Confirm the current second-home treatment with your lender before building a deal around it.

Does the Home Even Qualify as a Second Home?

The gift rules assume the property passes the second-home test. Under Fannie Mae’s occupancy rules, the home must be:

• occupied by you for some part of the year;
• a one-unit dwelling;
• suitable for year-round use;
• under your exclusive control;
• not a rental or timeshare arrangement.

If the lender spots rental income from the property, the loan can still be delivered as a second home. That income just can’t be used to qualify. So the new payment goes into your debt-to-income ratio at full weight.

A home that fails these tests gets treated as something else. Different occupancy means different leverage and, as the table showed, different gift rules.

What Paperwork Does a Gifted Down Payment Need?

You need a signed gift letter and a clean trail from the donor’s account to yours or to the closing agent. Plan on three pieces.

The gift letter. The donor signs it. It shows the donor’s mailing address and phone number, states the amount, and confirms the gift does not have to be repaid. Ask your lender for its preferred form first. Many have one.

The money trail. The lender follows the funds from the donor’s account to you or to the title company. Bank statements show the donor had the money and sent it. A cash handoff with no record is a problem. (So is depositing the gift into an account where it mixes with other deposits you can’t explain.)

The match. The gift in your file must equal the gift that actually arrives. If the amount changes, the lender may have to resubmit the loan to the automated underwriting system. That reworks the file and can stall your closing. Settle the number before you submit.

Many lenders also allow a gift to cover the earnest money deposit. Ask before the donor wires anything. A deposit paid from the wrong source is hard to fix later.

Which Mistakes Sink Gifted Second-Home Files?

These are the usual ones. Most are avoidable.

1. Treating the gift as a loan. If the family expects repayment, it is not a gift. A disguised loan can be treated as loan fraud, as HSH’s consumer guide points out. Repaying a donor from loan proceeds later falls in the same trap.

2. Counting on 100% gift above 80% LTV. It works on some primary homes. It doesn’t on a second home.

3. Picking the wrong donor. An agent, a builder, or the seller can’t be your donor.

4. Moving money late or unevenly. Mismatched amounts and unexplained transfers hold up files.

5. Assuming a wedding or graduation gift exception helps. Those provisions are aimed at primary residences. Don’t count on them for a second home.

6. Skipping the lender’s own rules. Individual lenders can be stricter than the agencies. Ask about overlays up front.

In the second-home files Lendmire arranges, the biggest surprise is rarely the donor. It is the appraisal. Buyers plan for 20% down and then see LTV drift above 80%. A buyer with savings to spare handles that easily. A buyer relying wholly on family money does not. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

How Does a Gift Affect Mortgage Insurance and Qualifying?

A gift does not change the qualifying math. Your credit and ratios still decide the file. Wholesale conventional programs start at a 620 decision score, and the automated finding governs most files, with a 50% total ratio ceiling. All of this is subject to lender guidelines and full file review.

What the gift changes is the LTV. A bigger down payment, gifted or not, pulls LTV down. Above 80% LTV, mortgage insurance is required. You may request cancellation at 80% of the original value, given a good payment history, no subordinate liens, and no decline in value. The servicer must end it automatically at 78%. Second homes also carry loan-level pricing adjustments that vary by credit score and LTV. Staying at or below 80% can help there too, and it also removes the own-funds requirement.

So the sharper question is not “can a gift cover it?” It is “should I put down 20% to avoid all of this?” That is a real trade-off. A larger down payment leaves less cash in reserve. Less cash in reserve may leave you thin after closing. This one is a genuine toss-up, and the answer depends on how much cushion you keep.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

Key Terms Defined

LTV (loan-to-value): The loan balance divided by the home’s appraised value or price, whichever is lower. It decides the 80% line in the gift rule.

Own funds: Money that belongs to you, such as savings or the proceeds of assets you sold. A gift doesn’t count as your own.

Gift letter: A signed statement from the donor that the money is a gift and need not be repaid.

Gift of equity: A discount on the sale price from a relative who is selling you the home. It counts toward your down payment.

Reserves: Money left in your accounts after closing. Lenders may require some, and a gift of equity can’t count toward them.

Interested party: The seller, builder, agent, or anyone with a stake in the sale. These parties can’t be gift donors.

Is a Gifted Down Payment Right for Your Purchase?

If you are buying a home you will use part of the year, a gift can carry a good share of the down payment. Know your LTV and keep your own 5% ready if you are over 80%. Pick the donor carefully. Get the paperwork lined up before the money moves.

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 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 that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide: Personal Gifts

2. Fannie Mae Eligibility Matrix

3. Freddie Mac Guide Bulletin on the Related Person definition

4. Freddie Mac Guide Bulletin on gift donors owned by a Related Person

5. Fannie Mae Selling Guide: Occupancy Types

6. HSH’s consumer guide