Down Payment Gifts: Use Someone Else's Money To Buy A House

Why Down Payment Gifts Are More Common Than Ever

As home prices continue to rise across Texas and the U.S., more buyers are leaning on family or friends for financial help. The median home price now exceeds $400,000, and many first-time buyers struggle to come up with even 5% down. According to a recent Consumer Finance Protection Bureau report, 31% of homebuyers aged 25-44 received down payment gifts between 2009 and 2016.

And newlyweds are leading the trend. A 2025 LendingTree survey found that 48% of newly married homeowners asked for cash instead of wedding gifts to help fund their home purchase. With weddings often competing with homeownership goals, many couples are prioritizing long-term housing security over china sets and air fryers.

Who Can Give a Down Payment Gift? It Depends on the Loan Type

One of the most important things to understand when using gifted funds is that not all mortgage programs treat gifts the same way. While many loan types allow you to receive help from family, friends, or others, the rules vary depending on the loan product—and if you get it wrong, your loan approval could be delayed or denied.

Let’s break it down in more detail:

Conventional Loans (Fannie Mae & Freddie Mac)

Conventional loans have the strictest definitions of who qualifies as a gift donor.

• The gift must come from a family member: someone related by blood, adoption, legal guardianship, or marriage.
• That includes parents, siblings, children, grandparents, aunts, uncles, and spouses.
• Not allowed: gifts from friends, employers, or fiancé(e)s unless you're legally married.

Conventional loans typically require a gift letter and documentation showing the transfer of funds.

FHA Loans

FHA loans are more flexible and forgiving when it comes to gifted down payments. That’s one of the reasons they’re popular with first-time buyers.

• Accepted donors include family members, close friends with a "documented interest" in the borrower, employers, labor unions, and charitable nonprofits.
• Gifts can be used for both the down payment and closing costs.
• FHA lenders often require documentation like:
  • A signed gift letter
  • Proof of donor’s ability to give (such as a bank statement)
  • Evidence of the funds transferring

VA and USDA Loans

These government-backed loans are the most flexible when it comes to who can contribute a gift.

• Virtually anyone can provide a gift—as long as they are not an "interested party" to the transaction (like the seller, real estate agent, or builder).
• Common gift sources: parents, extended family, friends, coworkers, church communities.
• VA loans don’t require a down payment in many cases, but gifts can still be used toward closing costs or reserves.

Jumbo Loans

If you're purchasing a higher-value home—especially in expensive metro areas like Austin or Dallas—you may need a jumbo loan. These are mortgages that exceed the conforming loan limits (currently $806,500 in most counties).

Because jumbo loans can't be sold to Fannie Mae or Freddie Mac, the underwriting guidelines are stricter, and gift rules can be more nuanced.

• Yes, gift funds are typically allowed, but with caveats:
  • Lenders may require a minimum borrower contribution—you may not be able to use a gift for the entire down payment.
  • Expect to put down at least 10%-20%, and often more for second homes or investment properties.
  • Credit score requirements are higher (usually 700+).
  • You’ll need to provide strong documentation, including:
    • A formal gift letter
    • Proof of transfer from donor’s account
    • Asset verification showing ample reserves (6 to 30 months of expenses)
• Some lenders won’t allow any gifts on jumbo loans unless you meet certain income or asset thresholds.

If you're considering a jumbo mortgage, it's crucial to work with a mortgage broker who understands lender-specific rules and can guide you through the right path for documenting gift funds properly.

Real-Life Example: A Father Helping His Son and Daughter-In-Law Buy in Austin

After getting married, a young couple in Austin set their sights on purchasing a $600,000 home. They had managed to save $60,000 on their own—enough for a 10% down payment—but wanted to increase their stake to 20% so they could avoid private mortgage insurance (PMI) and qualify for a more favorable interest rate.

That’s when the groom’s father stepped in. As a wedding gift and gesture of generational support, he gave the couple an additional $60,000. With their combined $120,000 down payment, they were able to put down a full 20% on their home purchase.

By using both savings and a gift, the couple avoided PMI, locked in better loan terms, and held onto some of their own reserves to furnish their new home and cover moving costs. Their father’s contribution was properly documented with a gift letter and supported with a wire transfer and matching bank statements—no hiccups, no delays.

In today’s high-cost markets like Austin, stories like this are becoming more common. When structured correctly, family gifts can be the difference between settling for a home and securing the one you really want.

What Is a Gift Letter and Why Do You Need One?

Every lender will require a signed gift letter to confirm the source of the funds and the nature of the gift. The letter typically includes:

• The exact dollar amount of the gift
• A statement that repayment is not expected
• The relationship between donor and recipient
• The address of the home being purchased
• The donor's contact information and signature

Some lenders may also require a copy of the donor’s bank statement and proof of the wire or check clearing.

Can the Gift Giver Expect to Be Repaid?

Absolutely not. If there is any expectation of repayment, even informally, the money will be treated as a loan and factored into your debt-to-income ratio. Worse, misrepresenting a loan as a gift could qualify as mortgage fraud.

Gifted funds must be freely given. No side agreements. No paybacks. Just genuine help.

Common Mistakes to Avoid With Down Payment Gifts

Getting a gift to help with your home purchase can be incredibly helpful—but if the funds aren’t handled correctly, they can become a major liability in your mortgage process. Here are the most common pitfalls homebuyers make when accepting down payment gifts, and how to avoid them:

1. Depositing gift funds without documentation. Lenders are required to verify the source of large deposits in your bank account. If you deposit gift money without first documenting it with a gift letter or showing a clear paper trail, it can delay underwriting or trigger additional scrutiny. Always coordinate with your loan officer before the funds hit your account.
2. Using a gift from an ineligible donor. Each loan program has specific rules about who can give you a gift. For example, a conventional loan doesn’t allow gifts from friends or unmarried partners unless you're legally related. If you accept a gift from someone not approved by the loan guidelines, your loan could be rejected. Double-check your donor’s eligibility early in the process.
3. Failing to submit a proper gift letter. A gift letter isn’t just a formality—it’s required by every lender. This document proves that the money is a gift and not a loan. A vague or incomplete letter will almost always result in a request for more information. Make sure your letter includes the exact amount, your relationship to the donor, a statement that the gift doesn’t need to be repaid, and signatures from both parties.
4. Trying to hide a repayable loan as a gift. This is a serious mistake. If you’ve agreed to pay the money back, even unofficially, it is not a gift. Presenting it as one is a form of mortgage fraud. It also affects your debt-to-income ratio and could jeopardize your approval. Be honest with your lender—it’s better to structure the transaction properly than risk legal or financial consequences.
5. Transferring cash instead of using traceable methods. Cash is difficult to document and almost always raises red flags. If a donor insists on giving you money in cash, deposit it into their bank account and send it via a check or wire transfer. This way, you’ll have verifiable records that the money came from the donor’s account and not from an undisclosed loan or income source.
6. Overlooking timing issues. Some borrowers wait too long to address gift documentation, especially if funds are sent near closing. Ideally, gift funds should be transferred and documented before or at the time of initial underwriting. Rushing this step can delay your close or result in last-minute conditions you may not be able to meet.

Avoiding these mistakes can mean the difference between a smooth approval and a stressful, delayed transaction. When in doubt, talk to your loan officer before any money changes hands

Gift of Equity: When the Seller Is a Family Member

Some buyers receive a "gift of equity" instead of a cash down payment. This happens when a family member sells a home for less than its appraised market value and allows the difference to count as a gift.

For example, if your parents sell you their $400,000 home for $350,000, the $50,000 difference in value becomes your gift of equity. That $50,000 can then be used as a down payment or to meet equity requirements—as long as it's properly documented and supported by an appraisal.

A gift of equity can significantly reduce the cost of homeownership for the buyer and help them avoid PMI or qualify for better loan terms. It also allows sellers to support loved ones without depleting their savings. Just be sure to consult your lender and possibly a tax advisor before moving forward.

Whether you're passing down the family home or helping a child get started, this strategy is a powerful tool for families looking to build generational wealth through real estate.

Buying a Home With Gifted Funds in Texas? Work With a Mortgage Broker Who Knows the Rules

At LendFriend Mortgage, we work with many buyers using down payment gifts, especially first-time homebuyers and newlyweds. Whether you're getting help from family, friends, or your wedding guests, we’ll make sure it’s done right.

As a mortgage broker in Austin, we shop dozens of lenders to find the best rates and make sure your gift is documented correctly. No surprises, no delays, and no stress.

Final Thoughts: You're Not Alone

Homeownership is still within reach—especially when you use every resource available. If you're fortunate enough to receive help, make sure it's handled the right way.

Whether you're a newlywed, a first-time buyer, or a parent hoping to assist your child, gift funds can be the key to unlocking the door to homeownership. Contact us or call 512.881.5099 today.