Gift funds for your down payment: the rules, the letter, and the paper trail

Who is allowed to give you money

Lenders care where your down payment comes from because borrowed money disguised as a gift changes your real debt load. So programs define acceptable donors. For conventional loans, Fannie Mae's Selling Guide defines the acceptable donor list around family — spouse, children, other relatives by blood, marriage, adoption, or legal guardianship — along with certain close relationships like a domestic partner or fiancé. FHA, VA, and USDA each maintain their own donor rules, which broadly rhyme with this but differ in details.

Two categories are firmly excluded everywhere: anyone with an interest in the transaction (the seller, the agent, the builder — except through separately regulated interested-party contribution rules) and anyone expecting repayment. A gift that is secretly a loan is misrepresentation, and it is the kind that surfaces, because underwriters are trained to look for it.

The gift letter: what it must actually say

Every program requires a gift letter, and its content is standard. The letter is short but load-bearing — it is the donor's written statement, and signing one that is false is fraud. A complete letter includes:

• The donor's name, address, phone number, and relationship to you
• The dollar amount of the gift
• The address of the property being purchased, once known
• An explicit statement that no repayment is expected or required
• The donor's signature and, for most programs, yours as well

Seasoning and the paper trail: why the money's history matters

Underwriters verify assets by reading your recent bank statements — typically the last two months. Money that has sat in your account for that full window is considered seasoned: its history predates the statements, so no further sourcing is required. Money that appears inside the window is a large deposit, and every large deposit must be explained and documented.

This is where gift funds get procedurally interesting. A gift is by definition a recent large deposit, so it must be fully sourced: the gift letter, plus evidence of the transfer — the donor's withdrawal, the check or wire, and your deposit. Many programs also allow the gift to be sent directly to the closing agent at settlement, which can be cleaner than routing it through your account.

The practical consequences: first, if family plans to help, either move the money early enough to season it or keep it in the donor's account until it can be transferred with clean documentation — the worst pattern is money hopping between accounts, because each hop needs its own paperwork. Second, never take a gift in physical cash. Cash has no source that underwriting can verify, and depositing it right before applying creates a deposit that cannot be documented. Third, the donor should expect to show their own statement; some donors bristle at this, so warn them before underwriting asks.

Taxes: a donor question, not a buyer question

Buyers often worry the gift will be taxed as their income. It will not — gifts are not income to the recipient under federal tax law. Gift tax, to the extent it applies, is the donor's concern, and for most family gifts it amounts to a filing question rather than a tax bill: gifts above the annual exclusion amount require the donor to file a gift tax return, but a lifetime exemption typically absorbs the tax itself. Both figures are adjusted over time, so check the current amounts on the IRS gift tax FAQ or with a tax professional rather than relying on remembered numbers.

The mortgage process and the tax rules are separate systems: the gift letter satisfies the lender, not the IRS, and an IRS filing does not satisfy the lender. Donors giving large amounts should talk to their tax advisor; buyers should tell their loan officer a gift is coming as early as possible — ideally at preapproval. Wholesale Mortgage Lending arranges loans across conventional and government programs, and knowing a gift is in the file from day one lets the documentation be staged before an underwriter ever asks.