Down Payment Gift Rules: What Homebuyers Should Know

For many first-time homebuyers, saving enough for a down payment is one of the biggest challenges — that’s why roughly 25% of first-time buyers use a gift from family or friends. While you’re generally allowed to accept a down payment gift to buy a home, lenders need to verify the source of these funds when they review your loan application. To increase your chance of approval and keep your loan on track, it’s important to understand the rules and limitations around down payment gifts.

What Is a Down Payment Gift?

If a relative or friend gives you money for a down payment without any expectation of repayment, it’s considered a down payment gift. However, if they think you might repay them at some point in the future, your lender will view it as a loan, not a gift.

As an example, let’s say your parents want to give you $20,000 to buy your first home. They make it crystal clear that these are gift funds for down payment purposes, and that they don’t expect repayment of any kind. Since you’re taking out a loan, your parents also write a letter detailing the gift, which both of you sign before sharing it with your lender.

While most down payment gifts come from parents or other relatives, they’re not the only ones who can contribute to your down payment. Each loan type has its own list of eligible donors, as well as certain documentation requirements or other limitations.

Down Payment Gift Rules by Mortgage Type

Each loan type has different rules and requirements surrounding down payment gifts. These rules can limit who’s able to contribute a down payment gift, the amount the borrower must contribute and certain documentation requirements.

Conventional Mortgage Gift Rules

A conventional mortgage typically has more restrictions than other types of mortgages, particularly around eligible donors. Conventional loan rules include:

• Minimum borrower contribution: No minimum borrower contribution for one-unit primary residences; 5% contribution for secondary homes or multiunit purchases when the down payment is less than 20%.
• Acceptable donors: Blood relatives, spouses, legal guardians, domestic partners, fiancés/fiancées, godparents and former relatives. 
• Documentation requirements: Signed gift letter clearly stating no expectation of repayment; proof of gift transfer.

FHA Mortgage Gift Rules

FHA loan rules are generally more flexible than conventional loans. However, certain rules still apply, including donor eligibility requirements and strict documentation requirements.

• Minimum borrower contribution: None.
• Acceptable donors: Family members, employers, labor unions, close friends with a clearly defined documented interest in the borrower, charitable organizations, government agencies or public entities with housing assistance programs.
• Documentation requirements: Signed gift letter clearly stating no expectation of repayment; verification of funds (e.g., donor bank statement) and proof of transfer (e.g., evidence of electronic transfer or official bank check).

VA Mortgage Gift Rules

To qualify for a VA loan, borrowers must meet certain eligibility requirements. However, VA-backed mortgages offer plenty of flexibility on down payment gifts.

• Minimum borrower contribution: None.
• Acceptable donors: Anyone, provided they don’t have a financial interest in the transaction.
• Documentation requirements: Signed gift letter with the amount of the gift, donor contact information and statement that no repayment is expected. Lenders must also verify funds (e.g., evidence of the borrower’s deposit, a copy of an electronic transfer or a donor's receipt on the closing disclosure).
• Other limitations: Gift funds may not be used to meet reserve requirements.

USDA Mortgage Gift Rules

The USDA loan program is available for properties in eligible towns, but has certain income limitations. When it comes to down payment gifts, USDA loans are generally very accommodating.

• Minimum borrower contribution: None.
• Acceptable donors: Anyone, provided they don’t have a financial interest in the transaction (and meet the documentation requirements of HB-1-3555 Chapter 9).
• Documentation requirements: Signed gift letter; copy of check/electronic transfer or closing disclosure showing receipt of donor’s funds.

How to Document a Down Payment Gift

Before approving your down payment gift, your lender will require a down payment gift letter from the donor. This letter specifies the amount of gift funds for the down payment and that the donor doesn’t expect any repayment.

At a minimum, a gift letter should include the following:

• The property address: The full address of the property being purchased.
• The donor’s contact information: Full name, address, phone number.
• Relationship to the borrower: Parent, spouse, domestic partner, employer, etc.
• The gift amount: The exact dollar amount of the down payment gift.
• A non-repayment clause: A clear statement confirming that the money is a gift and that the donor does not expect to be repaid in any way, either in cash or services.
• Dated signatures: The borrower and donor must both sign and date the letter.
• The source of the funds: The donor should specify the source of the funds, such as the institution name and account type.

Down Payment Gift Tax Consequences

As the recipient of a down payment gift, you won’t be taxed on the contribution amount. However, down payment gift tax consequences may apply to the donor.

Under IRS rules, individuals can give up to a certain amount each year to another person without needing to report the gift. This annual gift tax exclusion is set by the IRS and may change over time. If a gift exceeds the annual exclusion and is made by someone other than a spouse, the donor must report it by filing IRS Form 709.

It’s important to note that filing Form 709 doesn’t automatically result in taxes owed. Amounts above the annual exclusion typically count toward the donor’s lifetime gift and estate tax exemption, which is also established by the IRS and adjusted periodically. Only gifts that exceed this lifetime exemption may ultimately be subject to federal gift tax.

What to Know About Down Payment Gifts in Florida and Georgia

Like most other states, Florida and Georgia don’t impose a gift tax at the state level. This makes it simpler and easier for donors to make down payment gifts. Before contributing toward a down payment, donors should always verify any local down payment gift rules, such as Georgia’s “Good Funds” laws or Florida’s “collected funds” laws. In Georgia, state law requires wire transfers for all payments (including down payment gifts) exceeding $5,000, while in Florida, a down payment gift must be fully settled and credited to the escrow account before it’s considered “collected.”

To comply with state laws and local customs, down payment gifts should be deposited well in advance of the closing. To minimize paperwork and documentation requirements, you can “season” gift funds by depositing them into your account at least 60 days before applying for a mortgage. In most other cases, a down payment gift that’s wired directly to the title company at least 3–5 business days before closing should provide enough time for review.

Down Payment Gift Mistakes to Avoid

A down payment gift is a great way to make homeownership more affordable. But since there are certain down payment gift rules, it’s crucial to avoid common mistakes that could cause delays, such as:

• Missing documentation: Lenders must follow strict rules documenting the source of down payment gifts. This means they generally can’t accept physical cash as a down payment gift and will need to see a clear paper trail documenting the source of any cash deposits, often in the form of donor bank statements. Deposits and withdrawals of gift funds should also match exactly, as even small discrepancies can delay closings.
• Accepting gifts from ineligible donors: When buyers accept gifts from ineligible donors — such as the seller, builder, real estate agent or an affiliated entity — it can affect your loan application and may even be considered mortgage fraud. In some cases, this might be unintentional, which is why it’s crucial to communicate with your lender early on about any gifts you expect to receive.
• Failing to disclose gifts to your lender: Buyers should always disclose down payment gifts to their lenders as early as possible. Even if the gift is allowed, failing to disclose it up front can affect loan terms and approvals.
• Waiting until the last minute: Depositing gift funds at the last minute can cause delays and complicate closings. To ensure your down payment gift is ready for an on-time closing, it’s best to have the donor wire the funds directly to the settlement agent at least 3–5 business days before your scheduled closing.
  
  

Get Your Mortgage from Seacoast Today

While down payment gifts help bring homeownership within reach, each loan type has its own rules and regulations around who can donate to your down payment. As your local lender, Seacoast Bank’s mortgage loan officers will walk you through any down payment gift requirements. From traditional loans and government-backed mortgages to community and affordable housing loans, we’re here to make every Florida and Georgia homebuyer’s dreams a reality.