How to Use Gift Funds for a Down Payment

Buying a home comes with plenty of questions—and one of the biggest is: Where will my down payment come from? The good news is, it doesn’t always have to come out of your own pocket. One common solution for buyers is to use gift funds.

Whether it’s your first home or your next one, understanding how gift funds work can make a huge difference in keeping your loan process smooth and stress-free. Here’s what you need to know.

What Are Gift Funds?

Gift funds are money given to you by someone else to help with your down payment. These funds are not a loan—you don’t pay them back. They’re truly a gift, and that distinction matters when it comes to qualifying for a mortgage.

But before you let a family member write you a check, it’s important to know how the process works. Gift funds have to be documented carefully, and not everyone can give them.

Who Can Give You Gift Funds?

In most cases, gift funds need to come from a family member. This could include:

Parents or step-parents
Siblings
Grandparents
Aunts and uncles
Cousins
Godparents
Other close family relationships

In some cases, other people—like a long-time friend or a significant other—may be able to give gift funds, but this often depends on the loan program you’re using and the ability to document a close personal relationship.

If you’re in a more “gray area,” like receiving money from your stepfather’s girlfriend or a friend you’ve known for years, you’ll need to be prepared to explain and document the relationship. This is why it’s best to talk to your mortgage advisor before any money changes hands.

How Do You Document Gift Funds?

Here’s the key: gift funds must be properly documented, or they can create serious problems during your loan process.

What not to do: Don’t have someone hand you a check or Venmo you $20,000 and then deposit it into your bank account without a plan. That can trigger delays—or even jeopardize your loan.

What to do instead:

Talk to your mortgage advisor before the gift is given.
The giftor (the person giving the funds) will usually need to complete a gift letter.
In most cases, you’ll need to document the transfer—either showing the funds leaving the giftor’s account and entering yours, or going directly to the closing.

Different loan programs (like FHA, VA, or conventional) have different rules, so it’s important to get advice based on your specific loan type.

Will the Giftor Owe Taxes on the Money?

A common concern: “If I give money for a down payment, will I owe taxes?” The answer depends on the amount and current IRS guidelines.

I’m not a CPA, so I always advise giftors to speak with a tax professional. But typically, individuals can give a certain amount per year without triggering gift taxes. Your tax advisor will be able to guide you on how to structure the gift properly.

What If My Down Payment Isn’t From Gift Funds?

If gift funds aren’t an option, you still have other choices. For example, your employer may offer a bonus to help with your down payment. That money must run through payroll (not handed over as a check).

You might also qualify for down payment assistance (DPA) programs, which can come in the form of:

Grants
Forgivable second mortgages
Deferred-payment second loans
Local or state bond money

These programs can be incredibly helpful, especially for first-time buyers or those with limited savings.

Final Thoughts: Plan Before the Gift Is Given

Gift funds can be a huge help, but they need to be handled in the right way. Before anyone transfers money, talk to your mortgage advisor (that’s me!) so we can determine the best process for your specific situation and loan type.

Avoid the frustration of missing paperwork or delayed closings—let’s get ahead of it and do things in the right order the first time.

If you’re thinking about buying a home and want to explore your options for using gift funds or other down payment sources, let’s chat! I’d love to walk you through the possibilities and help you move forward with confidence.