The Ins and Outs of Giving or Receiving Down Payment Gifts

A down payment gift is money a family member or other acceptable donor gives a home buyer toward the down payment or closing costs, with no expectation of repayment. Most mortgage programs allow gift funds.

The catch is that the money has to be a true gift. That is, it needs a signed gift letter and a clear paper trail from the donor's account to the buyer's.

Receiving a gift? Confirm your loan program accepts your donor.

Giving one? Give early and document everything.

We are Bentley's Real Estate in Newburyport, Massachusetts, and our agents often help buyers sort out gift money. The first question both sides ask us is the same one: who is allowed to give?

Who can give you money for a down payment

The answer depends on your loan type. A conventional loan typically limits donors to family, while an FHA loan allows a wider circle that can include employers and close friends.

Loan type	Acceptable donors	Gift amount	Typical use
Conventional (Fannie Mae / Freddie Mac)	Relatives by blood, marriage, adoption or guardianship; domestic partners; fiancés	No cap on a one-unit primary home	Down payment and closing costs
FHA	Family members, employers, labor unions, close friends, charities, government agencies	Up to 100% of down payment and closing costs	Down payment and closing costs
VA	Family members, relatives, eligible organizations	No strict cap	Mostly closing costs, since no down payment is required
USDA	Family members, relatives, eligible organizations	No strict cap	Mostly closing costs and prepaid expenses

On a conventional loan, family can include parents, grandparents, siblings, children, a spouse, and often aunts, uncles, cousins and future in-laws. The relationship has to be real.

And it goes on the gift letter.

Choose a conventional loan when your gift comes from a close relative. Choose an FHA loan when the person helping is an employer or close friend.

Either way, ask your lender which donors it accepts before anyone writes a check, and ask about the property too.

When gift money works for the property you want

The home you buy shapes the rules as much as the donor does. Gift funds are acceptable for a one- to four-unit primary residence or a second home, but they generally cannot be used for a home that is purely an investment property.

Property and loan-to-value	Can you use gift money?	Do you need your own funds?
One-unit primary home, conventional loan	Yes	Not required; the entire down payment can be gifted
Two- to four-unit primary home or second home, smaller down payment	Yes	Often a minimum contribution from your own funds
Any primary or second home, larger down payment	Yes	Often not required; ask your lender
Investment property	Generally no	Your own funds

Buyers often miss one detail. If an acceptable donor has lived with the borrower for the last 12 months and both will live in the new home, those gift funds can count as the borrower's own money toward the minimum contribution.

What a gift letter must include

Once the donor and the property check out, the gift letter is what the lender will read next. It confirms the money is a gift and not a loan, and both the donor and the borrower sign it.

1. The donor's name, address and phone number
2. The donor's relationship to the borrower
3. The property address
4. The exact gift amount and the date of the transfer
5. A statement that there is no expectation of repayment
6. Signatures from both the giver and the borrower

Many lenders provide their own gift letter template. Use it, because a letter on the lender's form gets reviewed faster.

The paper trail lenders require

A signed letter only tells the lender what the money is. The lender still needs to see where the gift money came from and where it went, and the typical documentation set has four parts.

Documentation	Who provides it	Why the lender needs it
Signed gift letter	Donor and borrower	Confirms the funds are a gift, not a loan
Donor's bank statement	Donor	Shows the giver had the money and did not borrow it
Proof of transfer	Donor	Canceled check, cashier's check or wire transfer receipt
Borrower's deposit record	Borrower	Bank statement showing the deposit into your account

A check is easy for lenders to track, and so is a wire. Cash handed over in person is the hardest money to document.

Using gift money for closing costs and earnest money

That same paper trail follows the money wherever it lands at closing. Gift funds can generally be used for both the down payment and closing costs, subject to loan program guidelines.

On a VA loan, gift money can cover closing costs, prepaid expenses or the VA funding fee.

Case in point: earnest money, the piece people forget. If the donor pays the deposit directly to the holder of the earnest money, the transfer from the donor's account to that holder has to be documented too.

Where the gift goes	Typically allowed?	What to document
Down payment	Yes, within program rules	Gift letter, donor statement, transfer, deposit
Closing costs	Yes, on most programs	Same as the down payment
Earnest money deposit	Yes	Transfer from donor to the deposit holder
Reserves	After the minimum contribution is met	Same set of documents

Common mistakes that delay a closing

With that many places for the money to go, small slips add up. Most come from timing.

• Depositing cash with no record of where it came from
• Moving the money between several accounts before it lands
• A gift letter that leaves out the property address or the amount
• Waiting until the week of closing to start the paperwork

Start the gift paperwork when you get preapproved.

Seasoned funds and timing

Starting early pays off for another reason. Gift money that has been in your bank account for 60 days or more before you apply for a mortgage is considered "seasoned," and lenders may not need extra gift documentation.

Seasoning is no loophole, though.

Repaying a gifted down payment is considered mortgage fraud.

If the donor expects anything back, it is a loan and has to be disclosed as one.

Gift tax basics for the giver

After the closing, any leftover paperwork usually sits with the giver. The homebuyer receiving the gift generally pays no income tax on it.

Tax point	What it means
Annual exclusion (2026)	Up to $19,000 per recipient per year without reporting
Married couples	Each spouse can use their own exclusion for the same recipient
Above the annual exclusion	Counts against the lifetime exclusion; Form 709 may need to be filed
Lifetime exclusion (2026)	$15 million per individual, so most donors owe no actual gift tax

For most donors, a Form 709 is a disclosure rather than a tax bill.

We recommend talking to a tax professional before a large gift, and weighing the tradeoffs below.

Pros and cons for the giver and the buyer

	For the person giving	For the person receiving
Pros	Helps family buy a home sooner; no interest or repayment to track	Lower loan amount; may help avoid private mortgage insurance
Cons	Money is gone for good; possible Form 709 filing	Extra documentation; some loans still require part of the down payment from your own funds

Families do well to talk about expectations before the transfer, especially if other family members may expect similar help later. After that conversation, you can plan the timing with your lender.

How we help buyers in Greater Newburyport

Timing matters even more in Massachusetts, where a closing attorney typically handles the transaction and the clock starts once you sign the Purchase and Sale Agreement. We help buyers line up gift paperwork with their lender early so it never slows things down.

Bentley's Real Estate is the #1 real estate brokerage in Greater Newburyport by market share seven years running, and our 60+ agents guide buyers in Newburyport, Amesbury, Newbury and nearby towns to closing.

If family is helping you buy

If family is helping you buy, call us at (978) 572-1200 and we will walk you through the next steps with your lender and attorney.