Using Gift Money for a Down Payment: Rules and Gift Letters

Yes, you can use gift money for a down payment on most mortgages, as long as it comes from an acceptable donor, is a true gift with no repayment expected, and is documented with a gift letter and a paper trail. Fannie Mae even allows the entire down payment on a one-unit home you will live in to come from a gift.

The rules differ by loan type, and NYC co-op boards apply their own tests on top. The giver may also need to file a gift tax return, though actual tax is rare. Here is what each set of rules requires.

Who can give you the money

HUD’s FHA handbook defines Family Member broadly: children, parents and grandparents (including step and foster), spouse or domestic partner, adopted and foster children, siblings and step-siblings, aunts and uncles, and in-laws. Under Fannie Mae, the donor may not be, or be affiliated with, the builder, developer, real estate agent or any other interested party to the sale.

What the gift letter must say

Both Fannie Mae and FHA require a gift letter. It should include:

• The donor’s name, address and telephone number.
• The donor’s relationship to you.
• The dollar amount of the gift. Fannie Mae accepts the actual or maximum amount.
• A statement that no repayment is expected or required.

FHA requires the letter to be signed and dated by both the donor and the borrower. If a Fannie Mae gift comes from a trust or estate account, the letter must name the trust or estate. Most lenders have their own gift letter template; use it.

How to document the transfer

1. 1

   Tell your lender early

   Disclose the gift on your application and ask which documents the lender wants and when.
2. 2

   Move the money by check or wire, not cash

   FHA does not accept cash on hand as a source of gift funds. A traceable transfer from the donor’s account is what every lender wants to see.
3. 3

   Keep the paper trail

   Fannie Mae accepts, for example, a copy of the donor’s check with your deposit slip, a donor withdrawal slip with your deposit slip, or evidence of an electronic transfer. FHA accepts similar evidence, such as the donor’s bank statement showing the withdrawal plus your deposit.
4. 4

   Or send it straight to closing

   Both programs allow the donor to send the gift to the closing agent by wire or certified, cashier’s or official bank check. The lender documents it at settlement.
5. 5

   Expect questions about large deposits

   Fannie Mae defines a large deposit as a single deposit over 50% of your total monthly qualifying income. Lenders must source large deposits in your recent bank statements, so the gift letter and transfer record need to match the deposit.

How much has to be your own money?

Under Fannie Mae’s rules, no contribution of your own funds is required when the loan-to-value ratio is 80% or less, or for a one-unit principal residence at any LTV. For a two- to four-unit principal residence or a second home above 80% LTV, you must put in 5% from your own funds before gifts can fill the rest. Gift funds can also cover closing costs and, for personal gifts, reserves.

FHA loans require a minimum investment of at least 3.5% of the adjusted value, and an acceptable gift can fund it. Run the numbers in the FHA loan calculator or see how much down payment you need.

Gifts of equity

When a family member sells you a home below market value, the difference can count as a gift of equity. Fannie Mae allows a gift of equity toward the down payment and closing costs on a principal residence or second home, but not for reserves, and requires a signed gift letter and a settlement statement showing it. FHA allows gifts of equity only from Family Members selling to other Family Members.

Co-op boards and gift money

NYC co-op boards decide for themselves how to treat gifts. Many accept gifted down payments but still require you to meet their debt-to-income and post-closing liquidity tests from your own resources, because the gift won’t pay future maintenance. Some may also look at how long the gifted money has been in your account. Expect the board package to ask for the gift letter and bank statements showing the transfer. If your own finances don’t clear the board’s bar, a guarantor may be an option in buildings that allow one. See co-op guarantors and parents buying and co-op financial requirements.

Mistakes that delay closings

• Splitting the gift into many small deposits. It looks like you are hiding the source. One documented transfer is easier to explain than ten.
• Routing money through a third person. If a grandparent gives money to a parent who passes it to you, the lender may need to trace it back through both accounts. Have the actual donor send it directly.
• A letter that doesn’t match the deposit. The amount, the donor’s name and the account the money came from should all line up with your bank statement.
• Forgetting the co-op board. Lender approval doesn’t mean board approval. Give the board the same gift letter and statements the lender saw.
• Depositing the money too late. Last-minute gifts are allowed, but the documents must reach the lender before it issues the clear to close. Plan the transfer with your loan officer and attorney.

Gift tax: what the giver needs to know

The person who gives the money, not you, is responsible for any gift tax filing. For 2026 the IRS annual exclusion is $19,000 per recipient. A married couple who split gifts can give $38,000 to one person, and $76,000 to a couple, without using any lifetime exemption. A gift above the annual exclusion usually means the giver files Form 709. Tax is owed only after lifetime taxable gifts exceed the basic exclusion amount, which the IRS lists as $15,000,000 for 2026. Gifts to a spouse are eligible for the marital deduction and generally are not taxable gifts.

New York doesn’t charge tax on the gift itself, but it adds taxable gifts made within three years of death back into a New York resident’s estate, with some exceptions. The 2026 New York basic exclusion amount is $7,350,000. A giver with a large estate should talk to a tax professional before writing a big check.