A family member may be able to help you buy a home without lending you the money, but the paperwork can make the difference between an eligible gift and funds your lender cannot use. Rony Velasquez, Real Estate and Mortgage Broker, Realtor, and Mortgage Loan Originator, has held a DRE license since 2004, brings more than twenty-two years of experience, has handled more than three thousand transactions, and has helped more than five hundred families.
The problem: Why can a generous gift cause a mortgage delay?
A relative may be ready to send money, but a lender needs to verify where it came from, who gave it, and whether you are expected to repay it. An undocumented transfer, or cash deposited without a clear trail, can raise questions during underwriting. Underwriting is the lender’s review of your finances and documents to decide whether the loan meets its requirements.
The safest first move is to tell your lender about the planned gift before money changes hands. Ask for its gift-letter form and instructions for transferring the funds. That can help protect your timeline and give both you and your family more peace of mind.
What are FHA gift funds?
FHA gift funds are money from an eligible donor that you may use toward your home purchase, provided the gift is genuine and properly documented. A genuine gift has no expected or implied repayment. If you are expected to pay the donor back, the funds are not a gift.
For a one- to four-unit property, eligible gift funds can cover the full FHA minimum required investment. They may also help pay allowable closing costs. Your lender still needs to verify the source and transfer, and you must meet the loan’s other requirements.
How much of the down payment can a family gift cover?
FHA’s minimum required investment is three and a half percent of the lesser of the appraised value or the sales price. The lesser amount is whichever is lower. For example, if you agree to pay six hundred thousand dollars but the appraisal is five hundred ninety thousand dollars, the minimum investment is calculated from the appraisal.
FHA’s credit-score guidelines generally allow a three-and-a-half-percent minimum investment for borrowers with a score of five hundred eighty or higher. A score from five hundred to five hundred seventy-nine generally requires a ten-percent minimum investment. Borrowers with scores below five hundred are ineligible for FHA financing under these guidelines. Lenders may apply additional requirements, so confirm the standards for your application.
Who can give you the money, and who cannot?
Potentially eligible donors include:
- A family member
- Your employer or labor union
- A close friend with a clearly documented interest in you
- A charitable organization
- A government agency or public entity with an eligible homeownership-assistance program
A seller, real estate agent or broker, builder, or another person or company with a financial interest in the transaction generally cannot provide your gift. Do not try to route money from a transaction party through a relative or label it as a family gift. Your lender needs to know the true source.
What should the gift letter and paper trail show?
The gift letter is a signed record confirming the terms of the gift. FHA guidance calls for it to identify the donor, their contact information, their relationship to you, the gift amount, and that repayment is not required. The donor and borrower sign it. Your lender may also request the property address or its own form.
The transfer needs a traceable paper trail. Depending on how the funds are delivered, your lender may ask for the donor’s bank record showing the withdrawal, a canceled check, a withdrawal receipt, or wire confirmation. It may also need your statement or deposit record showing the funds entering your account. If the donor provides an official check at settlement, the lender may require evidence that the money came from the donor’s account.
Cash on hand is not an acceptable source for donor gift funds. Avoid informal cash handoffs, and do not move money between accounts to make its origin harder to follow.
What if the money comes from wedding gifts or crowdfunding?
Cash wedding or housewarming gifts can be difficult to document because it may be hard to identify each giver and trace each contribution. If you expect family or friends to contribute, ask your lender how to document it, deposit funds early, and keep records showing who gave what and how the money moved. A large deposit that your lender flags, particularly one above half your monthly effective income, may need a clear source explanation.
Crowdfunding proceeds are not automatically acceptable just because they arrive in your bank account. GoFundMe funds may be difficult to qualify if donors are anonymous or their eligibility and contributions cannot be established. Ask your lender before relying on crowdfunding, and be prepared to document the campaign, donors, contributions, fees, and transfer.
What does this look like before and after?
Before: Imagine you are buying a one-unit home for six hundred thousand dollars, and the appraisal also comes in at six hundred thousand dollars. The FHA minimum investment is three and a half percent, or twenty-one thousand dollars. Your parents offer to help, but you deposit a check without first asking the lender what evidence it needs. During review, you are asked to provide the gift letter and trace the deposit back to your parents’ account.
After: You first ask your lender for its instructions. Your parents sign the gift letter, transfer the money through a documented method, and keep the withdrawal and transfer records. You retain your deposit statement. The gift may cover the required investment, and it may also be used for allowable closing costs if properly documented. This does not guarantee loan approval: credit, income, property eligibility, appraisal, and other requirements still apply.
What should you know about closing costs and FHA loan limits?
An eligible gift may also help with closing costs. Separately, interested-party contributions, such as certain contributions from the seller or another party to the transaction, may cover up to six percent of the sales price toward eligible closing costs, prepaids, and discount points. These contributions cannot fund your down payment. Amounts above the six-percent limit trigger a dollar-for-dollar reduction in the sales price for FHA calculation purposes. The six-percent rule is not permission for an interested party to give you down-payment funds.
For 2026, the one-unit FHA loan limit is one million two hundred forty-nine thousand one hundred twenty-five dollars in Los Angeles and Orange Counties. It is six hundred ninety thousand dollars in Riverside and San Bernardino Counties. These are loan limits, not purchase-price limits; the maximum loan amount depends on the property and transaction details.
If you are considering a three- or four-unit property, additional rules apply. You generally need reserves equal to three months of principal, interest, taxes, and insurance, known as PITI. Gift funds cannot be used for these required reserves. The property must also pass FHA’s self-sufficiency test, which evaluates whether projected net rental income is sufficient in relation to the mortgage payment. Ask your lender to assess these requirements before making an offer.
Can you use this checklist before the transfer?
- Ask your lender to confirm the donor is eligible and provide its gift-letter form.
- Confirm the gift amount and that no repayment is expected.
- Have the donor and borrower sign the letter.
- Keep the donor’s withdrawal, canceled check, receipt, or wire confirmation.
- Keep evidence of the deposit into your account or delivery to settlement.
- Explain and document any large deposit your lender asks about.
- Do not rely on cash, anonymous crowdfunding, or money from a transaction party.
- Never pay a third party who offers to “clean” the money trail. Keep the source honest and documented.
For more consumer-focused homebuying resources, visit Maya Team Inc. You can also review HUD’s current Single Family Housing Policy Handbook information, its archived gift-funds guidance, and the HUD source-of-funds reference. FHA policies and lender documentation requirements can change, so ask your lender to confirm the current requirements for your loan.
Questions about a family gift?
Call Rony at 562-762-9634, email mayateaminc@gmail.com, or send a direct message through Maya Team Inc.
If you know someone whose family wants to help with their down payment, send this to them.
This article provides general information and is not legal, tax, or financial advice.
