Gift funds are money given to you by an eligible donor to help with your down payment and closing costs. They must come with a signed gift letter stating the money is a gift, not a loan.
Eligible donors vary by loan type. FHA allows gifts from family, employer, or close friend. Conventional allows family, fiance, or domestic partner. VA allows gifts from family or the lender.
Proper documentation is critical. You need a signed gift letter, proof of the donor's ability to give, and a paper trail of the transfer.
Gift Letter Requirements
The gift letter must include: donor name, relationship to you, dollar amount, property address, statement that no repayment is expected, donor signature and date. Most lenders provide a standard gift letter form.
Donor Eligibility by Loan Type
FHA: gifts from family members, employer, labor union, close friend, or charitable organization. Conventional: family, fiance or fiancee. VA: family members, the lender, or a governmental agency.
Documentation Process
You need: signed gift letter, proof of donor funds, proof of transfer (deposit receipt or wire confirmation), and donor contact info. If the donor gave cash, documentation is more difficult.
Common Mistakes to Avoid
Common mistakes: not including all required information on the gift letter, depositing cash without documentation, using money not yet seasoned in the donor's account, and not keeping a clear paper trail.
Large Gift Considerations
Gifts over a certain amount may require additional documentation about the source of the donor's funds. This is called sourcing. Be prepared to show a paper trail if the gift is especially large.
How to Structure a Gift
The safest approach: donor gives by check or wire directly to the title company, or you deposit it with a clear memo and keep all documentation. Talk to your loan officer before the transfer happens.