Can you qualify for a conventional mortgage if you use a gift for the entire down payment on a home?

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated October 20, 2020

You can use a gift to pay for all or part of the down payment on a home and qualify for a conventional mortgage.  If you are buying a single unit property such as a home or condominium, a gift can be used to pay for the entire down payment, regardless of the amount.

If you are buying a one-to-four unit property that you intend to live in, and your down payment is 20% or higher, a gift can also be used for the entire down payment.  For a two-to-four unit property with a down payment of less than 20%, you are required to make a personal financial contribution of at least 5% of the property purchase price and the remainder of the down payment can come from a gift. 

In addition to paying for your down payment, the gift can also be used to pay for closing costs and to meet reserve requirements, if applicable.  Similar guidelines apply to second homes but down payment gifts are not permitted for investment properties financed with a conventional loan.

Use ourDOWN PAYMENT CALCULATORto determine the down payment required to buy a home

The gift provider -- known as a donor when you apply for a mortgage -- must be a relative, fiance or domestic partner.  The gift must also be provided on an "arms length" basis which means the donor cannot have a connection to any builder, developer, real estate agent or other party involved in the property purchase or sale.

The gift provider is required to provide a gift letter to the lender that includes the following: the amount of the  gift, when the gift was made, the gift provider's contact information and relationship to the applicant and confirmation that the gift does not need to be repaid.  In short, the lender is required to verify that the gift is truly a gift and not a loan that the borrower is required to pay back.

The lender is also required to confirm that the gift funds are readily available to pay for the down payment and other expenses when the mortgage closes.  Acceptable gift verification documents include a check or withdrawal and deposit slips from the gift provider and recipient, respectively.  Please note that the donor can provide the gift funds either to the applicant or directly to the closing agent, usually via a check.

To qualify for a conventional mortgage, the gift funds only need to be available at closing but it may be helpful if they are deposited in the borrower's bank account, or seasoned, for at least two months before you apply for the loan.  Seasoning your down payment funds is not always necessary but it can make the mortgage process go more smoothly.

If you are considering using a gift for your down payment, we recommend that you contact multiple lenders below to confirm their documentation requirements as policies may vary.  Shopping lenders also enables you to find the best mortgage terms.

Sources

"B3-4.3-04, Personal Gifts."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, September 29 2015.  Web.