Gift money can be a game-changer when you’re buying a home. With rising home prices and high upfront costs, many buyers—especially first-timers—struggle to save enough for down payments and closing costs. A well-timed gift from family, friends, or even an eligible organization can help bridge the gap. But gifts only go so far—make sure to compare lenders, because rates can vary.
How Gift Money Can Be Used
Gift funds can typically go toward:
- The down payment
- Closing costs
- Prepaid expenses like property taxes and insurance
But most loan programs do not allow gift funds to count toward reserve requirements (the savings you must have left after closing). Always confirm with your lender upfront.
Who Can Give Gift Money?
Lenders and loan programs don’t treat all gift sources equally. Here’s a quick comparison:
| Loan Type | Who Can Gift Funds | How Gifts Can Be Used | Special Rules |
|---|---|---|---|
| Conventional | Parents, siblings, grandparents, children, fiancé/fiancée, domestic partners. In rare cases, close friends with a documented family-like relationship. | Down payment, closing costs, prepaid expenses | If buying a primary home, the full down payment can be gifted. For second homes or investment properties with <20% down, at least 5% must come from the borrower’s own funds. |
| FHA | Family members, employers, labor unions, charitable organizations, government agencies | Down payment, closing costs, prepaid expenses | FHA allows gift funds to cover the entire down payment. Reserves are generally not required, though some lenders may add their own stricter rules (overlays). |
| VA | Family members or eligible close relations | Closing costs, prepaid expenses, and optional down payments | VA loans don’t typically require down payments. Gifts usually cover closing costs or voluntary down payments. |
Documentation & Gift Letters
Every gift must be documented to the lender’s satisfaction. A standard gift letter includes:
- Donor’s name, relationship, and contact info
- Gift amount and transfer date
- Confirmation it’s a true gift (no repayment expected)
- Property address (if known)
Most lenders will also ask for supporting documents like the donor’s bank statement showing the transfer.
Tax Considerations for Gift Funds
For the recipient, gift money is not taxable income. But the IRS does set limits on how much can be given tax-free each year:
| Donor Type | Annual Limit (per recipient) | Example Scenario |
| Individual | $19,000 | A parent can gift $19,000 to their child without filing extra paperwork |
| Married Couple | $38,000 | Two parents can gift their child $38,000 together tax-free |
| Above the Limit | Must file Form 709 (gift tax return) | A $50,000 gift requires IRS filing, though tax may not be owed |
Gift tax responsibilities generally fall on the donor—not the homebuyer.
Key Takeaway
Gift money can be the difference between waiting years to buy and getting the keys today. But it has to be handled carefully: only certain donors are allowed, documentation must be thorough, and tax rules still apply. If you expect gift funds, loop in your lender early—they’ll walk you through acceptable sources, paperwork, and timing so the funds don’t hold up your closing.