Gifting a Down Payment for a House

Coming up with the down payment can be the biggest hurdle to buying a home. If you’re lucky, your parents, grandparents or other relatives will gift you a down payment. 

The amount given often depends on the type of mortgage and your credit score. An FHA loan, for instance, can be approved if you have a low credit score and can only require a down payment of 3.5 percent if your credit score is between 580 and 619. 

The lower your credit score, the more money you must put down yourself from your own income, with less being given as a gift. If your credit score is below 580, a 10 percent down payment at minimum is required for an FHA loan. If you put down 20 percent or more, the entire down payment can be a gift. 

Conventional loans, such as Fannie Mae or Freddie Mac loans, allow the entire down payment to be a gift if you’re putting down 20 percent or less of the home’s purchase price. 

Down payment funds also have other rules, starting with a down payment gift letter that’s required by the lender to document the gift. It isn’t a standard form, but can be written by you. You can get help writing this letter from your real estate agent or broker. 

Gifts are only allowed from family members, not friends. The letter should include the name and address of the person making the gift, the amount, address of the home you’re buying, the relationship of the giver, what type of account the money’s coming from and a clear explanation that the money is a gift, not a loan.

Documented proof will also be needed as to where the gift is coming from and that you’ve received it. This can be a bank statement or copy of a canceled check made out to you, or a brokerage account statement if investments are sold to raise the cash. The money you receive should be put into a separate account apart from your checking or savings. 

Tax implications should also be considered—not by you as the person receiving the down payment gift, but by the person making the gift to you. 

While tax laws are apt to change annually, it’s important for anyone gifting down payment funds to speak with a tax professional to understand exactly how the process works.