Will Lender Accept If a Friend Gift Money Conventional Loan

Lenders can accept gift money from friends for a conventional loan, but it's not always a straightforward process. In fact, the lender must document the gift and verify the donor's relationship with the borrower.

The lender will typically require a gift letter, which outlines the terms of the gift, including the amount and the donor's intention. This ensures the gift is not considered a loan, which would require repayment.

The lender may also ask for additional documentation, such as proof of the donor's income or assets, to verify their ability to provide the gift. This helps the lender assess the risk of the loan.

In some cases, the lender may require the borrower to use a portion of their own funds to cover a percentage of the down payment, even if the friend's gift covers the remaining amount.

Conventional loans have some flexibility when it comes to using gift money for down payments. With a Fannie Mae- or Freddie Mac-backed conventional loan, you can use a gift from a relative or a non-relative with a familial relationship, such as a domestic partner or godparent.

If your loan is backed by Freddie Mac, you might also be able to use wedding or graduation gifts, but you'll need to provide a copy of your marriage license or diploma. This is a great option for those who have received gifts for these life events.

Here's a quick rundown of the conventional loan gift rules:

Keep in mind that you'll still need to provide a gift letter and supporting documents to the lender, regardless of the type of conventional loan you're using.

A conventional loan is a type of mortgage that's not backed by the government. It's the most common type of loan, and it's a good option for many homebuyers.

To qualify for a conventional loan, you'll need to make a down payment, which can be a challenge for some people. But here's the good news: you can use a gift for your down payment, and it's not just limited to relatives. If you're buying a single-family home with a Fannie Mae- or Freddie Mac-backed conventional loan, your entire down payment can come from a gift, either from a relative or a non-relative that has a familial relationship to you.

Conventional loans are backed by Fannie Mae or Freddie Mac, and they have different rules for using gift funds. If your loan is backed by Freddie Mac, you might also be able to use wedding or graduation gifts, so long as you provide a copy of your marriage license or your diploma, respectively.

Here's a breakdown of the gift rules for conventional loans:

Keep in mind that you'll still need to provide a gift letter and supporting documents to your lender. This is a standard requirement for all loan programs, including conventional loans.

Conventional loans allow gift money for part or all of your down payment, closing costs, and financial reserves. You can use gift funds for a primary residence, but not for investment properties.

The acceptable sources of gift money are limited to family members and romantic partners. This includes relatives, domestic partners, and even godparents.

You'll need to provide a gift letter with the gift amount, the donor's contact information, and a statement from the donor that repayment isn't expected. This letter is crucial in verifying that the gift is genuine.

Borrowers must also provide evidence that the donor has sufficient funds or proof of transferred gift funds. This can be in the form of bank statements or a copy of a check or money order.

Here's a summary of the conventional loan gift rules:

Keep in mind that you'll still need to meet the lender's credit and income requirements, regardless of the source of your down payment.

For most conventional loans on a single-unit primary residence, you can use gift funds to cover your entire down payment and closing costs.

You'll need to provide 5% from your own funds if your total down payment (including gifts) is less than 20% for second homes and primary residences with 2-4 units.

The personal contribution requirement is lowered to 3% with HomeReady and Home Possible Loans.

There is an exception to this rule: if you receive gift funds from an eligible donor who has been living with you for at least 12 months and plans to live with you in your new home, you can use their gift to cover any required personal contribution.

This exception can be a big help for first-time homebuyers who may not have enough savings for the required personal contribution.

Gift money can be a huge help when trying to secure a conventional loan. Conventional lenders usually allow gift money for some or all of your down payment, closing costs, and financial reserves.

However, the acceptable sources are limited to family members and romantic partners, and gift funds can't be used on investment properties. You'll need to provide a gift letter with information including the gift amount, the donor's contact information, and relationship to you, and the donor's statement that repayment isn't expected.

To qualify as a donor, the person must be related to you by blood, adoption, guardianship, marriage, or be your fiancée/fiancé, domestic partner, or anyone related to them. Some conventional lenders may also allow gifts from godparents and other individuals with "close, family-like ties."

Eligible Donors can be a wide range of people, including those related to you by blood, adoption, guardianship, or marriage. This can also include your fiancée or fiancé.

You can also receive gift funds from your domestic partner and anyone related to them. This is a great option for couples who are not yet married.

Conventional lenders can even allow gifts from godparents and other individuals with close, family-like ties. This can be a good option for those who don't have a traditional family setup.

Here are some examples of eligible donors:

It's worth noting that Fannie Mae recently changed its rules to allow gifts from the trust or estate of an eligible donor, effective September 2023.

USDA loans have specific rules about gift funds. They can cover closing costs, but the donor can't have an interest in the transaction.

You'll need a gift letter confirming the funds don't have to be repaid. This letter is essential to prove the gift is legitimate.

The donor can be anyone, as long as they don't have a stake in the sale. It's like when a family member gives you money to help with a down payment.

You'll also need to provide bank statements to show the gift funds were deposited. This helps the lender verify the gift is real.

If the gift funds were given directly to the title company, you can provide a copy of the check or money order instead. This is a common scenario when a seller offers to cover closing costs.

Using gift money in conventional loans can be a great way to boost your down payment, but there are some rules you need to follow. Lenders usually allow gift money for some or all of your down payment, closing costs, and financial reserves.

The acceptable sources for gift money are limited to family members and romantic partners, and gift funds can't be used on investment properties. You'll need to provide a gift letter with information including the gift amount, the donor's contact information, and relationship to you, and the donor's statement that repayment isn't expected.

To use gift money, you'll need to provide evidence that the donor has sufficient funds or proof of transferred gift funds. You may also be asked to provide documentation to prove the transfer of the gift into your bank account.

One of the biggest advantages of receiving down payment gift money is that you'll be able to put down a larger amount than you would have without it. This could mean buying a more expensive home or reducing the total amount you're financing.

Conventional lenders do not allow gift funds to be used for investment properties. Down payment gifts may only be used when purchasing your primary residence or a second home.

Here's a summary of what you need to know about using gift money in conventional loans:

Note that you may be required to pay a portion of your down payment from your personal funds depending on the property type and the amount you put down. For instance, if you're purchasing an investment property, you may need to use your own funds for the down payment.

Government-backed mortgages can be a game-changer for homebuyers with limited savings. VA and USDA loans require no down payment at all, while FHA loans require as little as 3.5% down.

Zero down payment loans are another option to explore. Besides VA and USDA loans, there are local and national down payment assistance programs that can reduce or negate down payment requirements.

If you're not eligible for zero down payment loans, consider conventional loans with very low down payments. Wells Fargo offers a conventional loan program for first-time homebuyers with as low as 3% down, and Freddie Mac's Home Possible Loan also permits down payments as low as 3%.

Here are some loan options to consider:

If you're looking for alternatives to down payment gifts, you have several options. VA and USDA loans require no down payment at all, and FHA loans require as little as 3.5% down, making government-backed mortgages a viable choice for those with limited savings.

You can also explore zero down payment loans, although these are relatively rare. However, some local and national down payment assistance programs may be available, offering reduced or negated down payment requirements based on factors like your career field or buying in a specific neighborhood.

Some conventional loans, such as Wells Fargo's program for first-time homebuyers, offer low down payments of as little as 3%. Another option is Freddie Mac's Home Possible Loan, which also permits down payments as low as 3% and is intended for first-time or low- or moderate-income buyers.

Another way to help your child buy a home is to consider co-signing the mortgage application, which can boost their chances of securing financing. However, this means you'll be on the hook for the payments if your child can't make them, so it's essential to carefully consider this option.

Alternatively, you can become a co-borrower on the mortgage, giving you ownership of the home, but also increasing your liabilities and paperwork. You can also help with closing costs, which can be a significant upfront expense, but may be more manageable than a down payment.

Here are some alternatives to down payment gifts, summarized:

If you're considering helping your child buy a home, you can also offer to rent a room to them at a reduced rate or for free, which can help them save for a down payment.

Timing your deposit strategically can save you time and hassle when applying for a mortgage. Most lenders consider your assets secure when they've been in your account for at least 60 days.

This means you should aim to make your deposit at least two months before applying for a mortgage. This allows lenders to verify the funds and ensures a smoother application process.

You can also save yourself time by avoiding last-minute deposits, which can lead to delays in your application.

Using a gift for your down payment can be a smart move, especially for first-time homebuyers. Gift funds can help meet down payment and closing cost requirements.

To maximize your chances of getting a conventional loan, consider the tax implications of receiving a gift for your down payment. The tax implications of receiving a gift for your down payment can be complex, but they can be minimized with the right guidance.

A lending professional can help you figure out exactly how far your down payment gift funds can get you.

Using gift funds for a down payment can be a game-changer for first-time homebuyers. Gift funds can be used to meet down payment and closing cost requirements, making it easier to purchase a home.

Most loan programs allow gift money from family members, including parents, grandparents, and siblings. Conventional loans specifically require the gift to come from a family member or domestic partner.

Some lenders also permit gifts from non-relatives, but the giver can't be a financially interested party, such as the real estate agent or the seller. This is an important consideration when deciding who to ask for help.

Gift tax implications may apply depending on the gift amount and your relationship with the recipient. Be sure to consult with a tax professional to learn what applies to your situation.

Using gift funds for a down payment can be a great way to get into a home, but it's essential to understand the rules and regulations surrounding gift funds.

Most individuals won't face tax implications by providing or receiving a down payment gift, as the donor is technically responsible for taxes.

However, the IRS offers annual and lifetime exclusion limits, which eliminate the burden in most cases. As of 2025, donors can provide an annual tax-free gift of $19,000 per recipient.

A married couple providing a down payment gift to their child could give $38,000, which is the maximum allowed under the annual limit. Gift funds that exceed this limit count towards the donor's lifetime exclusion.

The lifetime exclusion is currently $12.92 million, and actual tax burdens don't begin until that limit has been reached.

Lenders may investigate the source of your down payment funds, so it's essential to be prepared. Your lender might contact your donor and ask them to provide withdrawal and deposit slips to verify the transaction.

You'll need to have your donor's account statements ready, which can be a bank or investment account statement in their name. This will prove that they have the funds available.

If you've already received the down payment gift funds, your lender will need proof that the funds originated from the donor and were deposited into your account. This could be your deposit slip and the canceled check, your deposit slip and the donor's withdrawal slip, or electronic evidence that the funds have transferred from the donor's account to yours.

Your lender will likely provide you with a letter in their preferred format, but expect it to include the donor's relationship to you, their full name, address, and telephone number, the exact or maximum dollar amount they're gifting, and a statement that they don't expect you to repay the gift.

Here's what you'll need to provide to your lender:

A gift letter for a mortgage verifies the source of a homebuyer's gifted down payment funds. This is crucial because it proves that the funds are indeed a gift and don't have to be repaid.

The gift letter also shows that the giver isn't involved in the purchase or ownership of the home. This is important for lenders to know.

You might not need to provide a gift letter if the gifted funds have been in your account for a while. But it's always best to check with your lender first.

Here are some key facts to keep in mind: