From the Blog
Gift Money for a Down Payment: The FHA and Conventional Rules, Straight
A family gift can be the difference between buying now and renting another year, and the rules are more generous than most buyers realize. FHA borrowers may use 100% gift funds for the entire down payment, including the 3.5% minimum, and under Fannie Mae's selling guide a gift can fund the full down payment and closing costs on a one-unit principal residence at any loan-to-value, with no minimum of your own money required. Here is what lenders actually demand before a gift is allowed to pay your deposit.
A family gift can be the difference between buying now and renting another year, and the rules are more generous than most buyers realize. FHA borrowers may use 100% gift funds for the entire down payment, including the 3.5% minimum, and under Fannie Mae's selling guide a gift can fund the full down payment and closing costs on a one-unit principal residence at any loan-to-value, with no minimum of your own money required. Here is what lenders actually demand before a gift is allowed to pay your deposit.
The FHA rule: 100% of the down payment can be a gift
Per HUD's single-family handbook, the FHA minimum investment may come entirely from a gift. That means the full 3.5% down payment on a conventional-worthy credit profile, or the 10% minimum FHA requires at credit scores below 580, can be gifted, and gifts can also cover closing costs. The one thing gift funds cannot satisfy is the cash reserves the lender requires. Acceptable donors include family by blood, marriage, or adoption, close friends with a documented relationship, employers, unions, charities, and government down payment assistance programs. Parties to the sale, meaning the seller, builder, lender, or agent, cannot be the donor.
The conventional rule: gifts for the whole thing, with limits
Fannie Mae's selling guide allows gift funds to cover the entire down payment, closing costs, and reserves with no minimum borrower contribution on a one-to-four-unit principal residence or second home at 80% loan-to-value or less, meaning 20% or more down, and on a one-unit principal residence at any loan-to-value. The 5% own-funds floor applies only in the narrower case: a two-to-four-unit residence or second home financed above 80% LTV, where you must contribute 5% of the price or appraised value from your own money and gifts cover the rest. Investment properties cannot use gift funds at all, and the donor must be a relative or have a documented relationship with the borrower.
The gift letter and the paper trail lenders demand
Lenders require a signed gift letter stating the amount, the donor, the relationship, and that no repayment is expected, plus a clean paper trail showing where the money came from, typically the donor's account statements and the transfer record. The practical rules: the money should arrive in your account early enough to season, the letter should match the transfer exactly, and the funds handling is where deals trip. If the money is actually a loan, disclose it, because a hidden repayment obligation changes your debt-to-income ratio and can kill the file at underwriting.
- Get the gift letter signed before you submit the loan file, not after the underwriter asks.
- Deposit the gift into the account you are using for closing so the trail stays simple.
- Never have the donor deposit directly to the title company without telling your loan officer first.
Where this actually helps a San Antonio buyer
On a $300,000 purchase with FHA's 3.5% down, the $10,500 deposit can come entirely from a gift, and gifts can also cover a meaningful share of closing costs. Combined with a San Antonio down payment assistance program, a qualified family can enter the market with very little of their own cash on the table, which is exactly the situation where buying beats waiting on savings.
Written by Phyllis Domingo
REALTOR® · TX License 745926 · 100+ homes sold · Helping families move well in San Antonio and the Hill Country since long before the hard part became normal.
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