Using gift funds for your down payment

For many homebuyers, using gift funds for their down payments allows them to pay more than they possibly would using only their own funds. However, using gift funds for part of your home purchase comes with some extra rules and requirements.

Learn more about gift letters and what they entail, as well as what buyers may do to help make their homebuying journeys possible.

A down payment gift, or gift fund, is money gifted to a homebuyer to help pay for the mortgage down payment. Often, gift funds could be gifted by a homebuyer’s family, friends, partner, organizations, and more, depending on the loan type.

When using gift funds toward your down payment, you will likely need to provide a gift letter to your lender. Gift letters are documents that declare which money in your bank or credit union account is gifted and intended for your down payment. This document provides information for your lender — which funds are from your recurring income versus a one-time gift — to show what you may be able to afford.

Your lender will provide you with the information they need included in the gift letter, but the following details are typically what’s required:

• The name and relationship of who is providing the gift (and their signature)
• The donor’s contact information
• Your bank account information
• The exact amount of gift fund
• The date of receiving gift money and/or date of fund transfer
• A statement that notifies this money is a “bona fide gift,” i.e. that it does not have to be repaid
• The address of the home you are purchasing

Your lender may ask for more specific requirements even after a gift letter is provided, so be prepared to provide extra documentation if needed.

Note that small gift amounts typically don’t need to be documented in the process, but a good rule of thumb is to have paper trails for the money you deposit into your accounts. Check with your lender or home mortgage consultant for clarification.

Conventional loans
Most conventional loans will allow you to use gift money for your down payment or closing costs if the funds come from a family member. A family member is typically defined as a parent, sibling, child, grandparent, domestic partner, or fiancé, and may also include aunts, uncles, nieces, nephews, and in-laws. These relatives can be related by blood, marriage, adoption, or if they are part of a legal guardianship.

FHA loans
FHA loans  have similar conditions but ask that payments come from a more immediate family member — typically, gift funds from cousins, nieces, or nephews are not accepted under FHA loans. However, unlike conventional loans, FHA loans allow gifts from close friends who show an interest in your life, as well as employers, charitable organizations, or labor unions.

VA loans
VA loans allow gift funds if they are not from someone considered an interested party — i.e., a builder, developer, real estate agent, broker, or someone else involved in the home transaction.

If you plan to purchase a primary or secondary residence, you may typically use your gift funds toward part or all of your down payment. Some lenders may ask you to contribute a portion of your own funds alongside your gift funds, especially if your down payment is less than 20% of your home’s sale price.

If you choose to purchase a secondary home, FHA and VA loan options are not available. And conventional loans for secondary residences may require guidelines for gifting amounts, including how much of your own funds will be needed for your down payment alongside gift funds. Gift funds cannot go toward down payments for investment properties.

If you still have questions about gift fund requirements or how to properly account for your gift funds, talk to your home mortgage consultant. You can also set financial goals in LifeSync^® using the Wells Fargo Mobile^® app. 

Still have questions about how much you’ll need for a down payment? Explore more here.