What Exactly Is Gift Money?
Gift money is money given to you—typically by a family member or close friend—to help with your down payment or closing costs. The key word here is gift. It’s not a loan you’re expected to pay back, and your lender will want to see proof of that.
The Right Way to Use Gift Funds
Here’s how to keep things smooth and stress-free when using gift money in your mortgage process:
1. Get a Gift Letter
Lenders need documentation that the money you’re receiving is actually a gift and not a loan. A simple gift letter will do the trick. It should include:
The donor’s name, relationship to you, and contact info
The exact dollar amount of the gift
A statement that no repayment is expected
The donor’s signature and the date
Most lenders (including us!) have a gift letter template, so don’t worry—you won’t have to make it from scratch.
2. Know Who Can Gift You Money
Not just anyone can give you gift funds. For most loan types:
Conventional loans usually require the gift to come from a family member.
FHA loans are more flexible and allow gifts from family, close friends, or even employers in some cases.
VA loans also permit gifts but still require documentation.
Ask your lender if you’re unsure whether the donor qualifies.
3. Document the Transfer Clearly
Lenders want a paper trail. The best way to handle the gift is:
Have the donor write a check or do a wire transfer directly to your bank account
Provide a copy of the check, the deposit slip, or the bank statement showing the transfer
Avoid cash deposits or unclear transfers. Those can cause unnecessary delays.
The Wrong Way to Use Gift Funds
Here’s what not to do if you want your mortgage process to go smoothly:
1. Don’t Try to Hide It
Depositing gift money without documentation can raise red flags. Lenders may assume it’s a loan or unverified income, and that can seriously slow things down—or even jeopardize your approval.
2. Don’t Use Untraceable Funds
Cash gifts or vague Venmo transfers without a paper trail won’t fly. Lenders need to know where the money came from and that it’s not being paid back.
3. Don’t Wait Until the Last Minute
Bringing in gift money right before closing can trigger a scramble for documentation. Ideally, have everything in place early in the process so there’s time to provide what’s needed.
A Little Planning Goes a Long Way
Gift funds can be an amazing way to make homeownership more accessible. But like most things in the mortgage world, documentation matters. A quick chat with your lender early on will save you a lot of hassle later.
If you’re thinking about using gift money—or just wondering how to get started with buying a home—feel free to reach out. I’m always happy to walk you through the process and help you put your best foot forward.
