Jan 15, 2027 · By Oanh Nguyen · Broker & Loan Officer · Home Loans
In the Bay Area, saving for a home can take years. Many buyers get help from family. A parent, grandparent or other relative may want to give money toward the down payment or closing costs.
In many cases, that's allowed. But lenders have rules about who can give, how the gift must be documented and how the money must move. The rules depend on the loan program and the lender. Getting it right early prevents delays and stress later.
In this post, I'll explain who can usually give, what a gift letter includes, how transfers should be documented, how programs differ, why timing matters and what to confirm with your lender.
This is general education, not a loan offer, tax advice or legal advice. Loan programs, guidelines and eligibility change and depend on lender review and approval. Gift tax questions belong with a CPA.
The Short Answer
Many loan programs allow gift funds for a primary residence, and some allow them for a second home, for things like the down payment, closing costs or reserves. Investment property purchases are often treated differently.
Fannie Mae's Selling Guide, for example, says a borrower buying a principal residence or second home may use funds received as a personal gift from an acceptable donor, and that gift funds may fund all or part of the down payment, closing costs or reserves, subject to certain requirements. Other programs, like FHA, VA and state programs, have their own rules.
Always confirm with your lender before any money moves.
Who Can Give a Gift?
Each program defines acceptable donors. Using Fannie Mae's guidelines as an example, acceptable donors include:
- Relatives, defined to include a spouse, child or other dependent, or anyone related by blood, marriage, adoption or legal guardianship.
- Certain non-relatives with a family-like relationship, such as a domestic partner, a fiancé or fiancée, a former relative or someone with a long-standing family-like relationship, as defined in the guidelines.
Fannie Mae also says the donor may not be, or be affiliated with, the builder, developer, real estate agent or any other interested party to the transaction.
Other programs may include different donors, such as employers, close friends or charitable organizations, or may exclude some. Ask your lender what applies.
The Gift Letter
Most programs require a gift letter signed by the donor. Fannie Mae's guidelines say the gift letter must include:
- The donor's statement that no repayment is expected.
- The donor's name, address, telephone number and relationship to the borrower.
Lenders often also want:
- The dollar amount of the gift.
- The property address, if known.
- The date of the transfer.
- Signatures from the donor and sometimes the borrower.
Your lender will usually provide its own gift letter form. Use theirs.
Important: a gift must be a true gift. If the money is actually a loan that you're expected to repay, it should not be documented as a gift. Lenders treat loans differently because they add to your debts.
Documenting the Transfer
Lenders need to see where the money came from and how it reached you or escrow.
Common ways to document a gift, based on Fannie Mae's guidance and common practice:
- A copy of the donor's check and your deposit slip.
- A copy of the donor's withdrawal slip and your deposit slip.
- Evidence of an electronic transfer from the donor's account to yours or to escrow.
- A statement showing the funds in the donor's account, if the gift will go directly to escrow.
Tips:
- Keep a clear paper trail. Avoid cash.
- Don't run the gift through other accounts first.
- Save every statement that shows the money leaving the donor's account and arriving in yours or at escrow.
- Ask your lender whether they want the gift deposited before or after they review your accounts.
How Programs Differ
Gift rules vary in ways that matter.
| Question | Why it varies |
|---|---|
| Who can give? | Each program defines acceptable donors |
| Can the gift cover the whole down payment? | Some programs require some of your own funds in certain cases |
| Can it be used for closing costs and reserves? | Depends on the program |
| Is it allowed for second homes or investment properties? | Often limited to primary residences |
| What documents are required? | Lenders and programs differ |
| Can the seller give a gift of equity? | Some programs allow it in family sales |
I don't list program percentages or limits here because they vary and change. Your lender can tell you exactly what applies.
Gift of Equity
A gift of equity can happen when a family member sells a home to you for less than its value and gives you the difference as a gift. Some programs allow this to count toward the down payment. It has its own documentation requirements. Talk with your lender and a CPA, since it can have tax effects for the seller.
Timing Matters
When the gift arrives can affect how easy it is to document.
- Talk with your lender first, before money moves.
- Plan the transfer so it can be documented clearly, often during the loan process or directly to escrow.
- Avoid last-minute transfers that could delay closing.
- Watch for wire fraud. If the donor is wiring money to escrow, they should call the escrow officer at a known number to confirm wiring instructions before sending. The CFPB warns about mortgage closing scams.
Tax Questions for the Donor
Gift taxes are the donor's responsibility, not the borrower's, in most cases. The IRS publishes FAQs on gift taxes, including rules about annual exclusions and when a gift tax return may be needed. Encourage your donor to talk with their own CPA before giving, especially for larger gifts.
Other Ways Family Can Help
A gift isn't the only way family members help buyers. Each option has different effects on the loan, taxes and family finances.
| Option | How it works | Things to consider |
|---|---|---|
| Gift | Money given with no repayment expected | Gift letter, documentation, donor's tax questions |
| Co-borrower | A family member is on the loan and often on title | Their income, debts and credit are part of the application |
| Non-occupant co-borrower | A family member on the loan who won't live in the home | Program rules vary |
| Family loan | Money lent with repayment expected | Counts as debt; must be disclosed to the lender |
| Gift of equity | A family seller sells below value | Program and tax rules apply |
| Down payment assistance | Programs from agencies like CalHFA | Eligibility rules, program requirements |
The right choice depends on everyone's goals. Talk with your lender, and encourage family members to talk with their own CPA or attorney.
Talking With Family About a Gift
Money conversations can be sensitive. A few tips:
- Be clear about expectations. A gift means no repayment. If anyone expects to be repaid, it's not a gift.
- Discuss ownership. A gift doesn't usually make the donor an owner. If they expect a share of the home, talk with an attorney.
- Share the lender's requirements early, so the donor knows what documents they'll need.
- Respect their privacy. The donor may need to share bank statements. Use secure channels only.
- Put the plan in writing, including timing and how funds will move.
Gift Fund Checklist
- ☐ Confirm with my lender that gifts are allowed for my loan and property type.
- ☐ Confirm the donor is acceptable under my program.
- ☐ Get the lender's gift letter form.
- ☐ Donor completes and signs the gift letter.
- ☐ Plan how the money will move: to my account or directly to escrow.
- ☐ Save donor's and my statements showing the transfer.
- ☐ Donor verifies wiring instructions by phone, if wiring.
- ☐ Donor talks with a CPA about gift tax questions.
Questions to Ask Your Lender
- Does my loan program allow gift funds?
- Who counts as an acceptable donor?
- Can the gift cover all of my down payment, or do I need my own funds too?
- Can gift funds be used for closing costs or reserves?
- What gift letter form do you use?
- Should the gift go to my account or directly to escrow?
- What documents do you need to show the transfer?
- Does a gift of equity work for my situation?
Common Mistakes
- Moving money before talking to the lender.
- Depositing cash gifts that can't be traced.
- Calling a loan a gift.
- Using a donor who isn't acceptable under the program.
- Missing documents for the transfer.
- Last-minute wires without verifying instructions.
Key Takeaways
- Many programs allow gifts for a primary residence.
- Each program defines who can give.
- A signed gift letter is usually required, with no repayment expected.
- Document the transfer with a clear paper trail.
- Talk with your lender before money moves, and the donor should talk with a CPA.
A Hypothetical Example
This example is made up to show the process. It is not based on any real borrower, donor, loan or lender.
A buyer's parents want to help with the down payment. Before any money moves, the buyer asks their lender whether gifts are allowed for their loan. The lender confirms they are, sends its gift letter form and explains the documents needed.
The parents sign the gift letter and talk with their CPA about gift tax filing. They plan to wire the funds directly to escrow. Before wiring, they call the escrow officer at the number on the escrow company's website to confirm the instructions. The lender receives the wire confirmation and the parents' bank statement, and the loan moves forward without delays.
Frequently Asked Questions
Can I use gift money for my down payment?
Often, for a primary residence, depending on the program. Confirm with your lender.
Who can give me gift funds?
Each program defines acceptable donors. Many include relatives and certain people with family-like relationships.
Do I need a gift letter?
Usually, yes. Your lender will provide a form.
Can a friend give me a gift?
It depends on the program. Some allow it, others don't.
Do I have to pay taxes on a gift?
Gift tax rules generally apply to the donor. The donor should talk with a CPA.
Can gift funds be used for an investment property?
Often not, or with limits. Ask your lender.
Should the gift go to my account or to escrow?
Ask your lender. Either may work with proper documentation.
What if the money is actually a loan?
It shouldn't be documented as a gift. Tell your lender, since loans count as debt.
Can more than one person give me a gift?
Often yes, with a gift letter and transfer records from each donor. Ask your lender.
Does the donor need to show their bank statements?
Sometimes. Lenders may need to see the funds leave the donor's account. Share documents only through secure channels.
How I Can Help
As a broker and loan officer, I help buyers and their families plan gifts the right way: confirming program rules, providing the gift letter, planning the transfer and keeping the paper trail clean. Loan approval always depends on lender review and approval.
The Bottom Line
Gift funds can help many buyers reach their goal, but the rules matter. Confirm your program allows gifts, make sure the donor is acceptable, use a signed gift letter, document every transfer, verify wiring instructions by phone and have the donor talk with a CPA.
Getting help from family? Let's plan the gift before any money moves.
Sources
- Fannie Mae Selling Guide, B3-4.3-04, Personal Gifts: https://selling-guide.fanniemae.com/sel/b3-4.3-04/personal-gifts
- IRS, Frequently asked questions on gift taxes: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
- U.S. Department of Housing and Urban Development, Buying a Home: https://www.hud.gov/helping-americans/buying-a-home
- U.S. Department of Veterans Affairs, VA-backed home loans: https://www.va.gov/housing-assistance/home-loans/
- California Housing Finance Agency (CalHFA), Steps to Buying a Home: https://www.calhfa.ca.gov/homebuyer/
- Consumer Financial Protection Bureau, Mortgage closing scams (one-page guide): https://files.consumerfinance.gov/f/documents/cfpb_mortgages-scams_one-pager.pdf
Plan a gift for your home purchase. Call or text me at 408-780-1188, or email onrealtygroup@gmail.com.
Oanh Nguyen · Broker & Loan Officer · On Realty Group, brokered by LPT Realty · BRE #02133991 · NMLS 2020335
Equal Housing Opportunity.
Loan disclosure: Oanh Nguyen, Broker | Loan Officer, On Realty Group, brokered by LPT Realty, BRE #02133991, NMLS #2020335. This post is general education, not a loan offer, rate quote or commitment to lend. Loan programs, guidelines and eligibility change and are subject to lender review and approval.
Disclaimer: This post is general information only, not an appraisal or legal, tax or financial advice; data comes from the public sources linked above, is believed reliable but not guaranteed, and can change at any time.