You’re planning to use gift money to help buy a house. Nice! But before you cash the check, make sure you know the rules. Mortgage lenders have policies for gift money, including:

• Who can and can’t give gift money to a home buyer.

• Which costs it can be used for.

• How to document the gift (a mortgage gift letter).

The rules are different depending on the kind of loan you get. Whether you’re giving or receiving a gift, here’s what you need to know to stay in the clear.

When you apply for a mortgage, the lender needs to make sure you can pay it back. A large down payment shows you’re financially stable. If some of that money comes from somewhere other than your own savings, the lender needs to know it’s not a loan you’ll have to repay.

You can use gift money for numerous homebuying costs, including:

• Closing costs and other fees. 

Each type of home loan (such as conventional or government-backed loans) has its own rules about using gift money for each of those expenses. We’ll focus here on the rules for using gift money for down payments — often the biggest up-front cost for first-time buyers.

If you’re using gift money to buy a house, you need to properly document where the money came from. The person or organization providing you with gift funds has to supply a gift letter for the lender. The letter should include the following information:

• The donor’s name, address and phone number.

• The donor’s relationship to you.

• A statement that you aren’t expected to pay back the gift.

• A statement that the donor has no interest in the sale of the property.

• The date that the funds were transferred.

• Signatures from you and the donor.

In general, close family members are typically allowed to give you down payment money to help you buy your primary residence. Extended family and friends are allowed in many cases, too. The rules for personal gifts differ by loan type.

Gift money from people you know, like a check from your parents, is considered a personal gift. Grant money from organizations, like down payment assistance, works similarly. Either way, you’ll need documentation (like a gift letter) to show where the money is coming from and prove that you don’t have to pay it back.

Here’s what to expect for personal gifts.

With a conventional loan, your down payment can be as low as 3%. A personal gift can come from:

• A spouse, fiance or domestic partner.

• A child or other dependent.

• Anyone related to you by blood, marriage or adoption.

• Someone with close, family-like ties, like a godparent or former relative.

• A collection of individual gifts, like graduation or wedding gift money.

When using graduation or wedding gifts, the lender will need proof (such as your marriage license or diploma), and the money must be deposited within 90 days of the event. Conventional loans also allow grant funds, such as those from down payment assistance programs.

Backed by the Federal Housing Administration, FHA loans have down payment requirements as low as 3.5%. FHA loans define a gift as money you don’t have to pay back. It can come from:

• An employer or labor union.

• Common sources of homeownership assistance, including charitable organizations, governments and public groups.

According to the FHA, “family members” include parents, grandparents, siblings, aunts and uncles; spouses and domestic partners; immediate in-laws; step siblings; foster parents and children; and adopted children.

VA loans, backed by the Department of Veterans Affairs, and USDA loans, backed by the U.S. Department of Agriculture, are generally OK with any source of gift funds for a down payment — as long as they’re not given by someone with a financial interest in the transaction. Each of these government-backed loans allows for 100% financing with no down payment required.

No matter what kind of loan you have, you generally can’t receive down payment gift money from anyone who would profit from your home purchase, such as the builder, developer, seller or real estate agent.

If a family member is involved in your transaction, ask your loan officer if they’re allowed to make a gift — rare circumstances might have exceptions.

One common workaround is closing cost assistance. You can negotiate for the seller to pay some or all of your closing costs, depending on state laws and the type of mortgage. This is most commonly seen in slow markets as a way to attract buyers.

The answer depends on what type of property you’re buying and which loan you’re using to fund it.

For a single-family primary residence, you can use gift money for your entire down payment, for all common loan types: conventional, FHA, USDA or VA. With a conventional loan, you can also use gift money to fund the full down payment of a live-in multifamily property (up to four units).

With a conventional loan: For second homes, you’ll need to put down at least 5% of your own money if making a down payment less than 20%. You can use gift money to cover the whole down payment if you’re putting down 20% or more. For investment properties, gift funds aren’t allowed.

In most cases, the person receiving gift money doesn’t have to pay taxes on it. However, the person giving the money might have to file additional tax paperwork. The annual exclusion per individual recipient is $19,000 for 2025, so if your gift exceeds that, the donor will have to file a gift tax return. This gift will go against their lifetime exclusion — however, as this is currently set at $13.99 million for individuals or $27.98 million for married couples filing jointly, they’ll likely be a long way from triggering a tax penalty.

If you’re fortunate to receive it, gift money can be helpful. It reduces your loan amount and avoids added debt when buying a house. Just ensure the gift is well-documented for mortgage approval.

Sometimes, though, receiving a gift can come with a feeling of obligation that you “owe” the giver, even if you don’t have to pay them back. For example, maybe your parents offer you money for your down payment — but only if you buy a house they approve of, which limits your freedom to choose.