Using Gift Funds for Your FHA Loan

Use gift money to pay for the down payment and closing costs.

Money in a gift boxThe 203(b) and 203(k) only require a 3.5 percent down payment. In addition to the down payment requirement, the borrower is also responsible for the closing and prepaid costs.

To help cover the closing and prepaid charges, the home seller is allowed (not required) to pay up to 6% of the sales price to the buyer's closing expenses. The home seller is not permitted to contribute to the down payment.

FHA Gift Donor Guidelines

Individuals listed below can help the borrower with a down payment, closing costs, and/or prepaid expenses. There must be no expectation or implication that the borrower would reimburse the money to the donor. In other words, there may not be a payback to the donor.

You might be surprised to learn that the donor (the person who gives the money) can obtain a loan to deliver the gift money to the borrower. It is permissible for multiple donors to make monetary contributions.

For example, if the mother and father are unable to provide the complete financial requirement, another qualified donor, such as a sibling or sister, might join their donation gift to meet the cash requirement.

FHA Gift Donor Eligibility

  • relative of the borrower
  • employer or labor union of the borrower
  • a close acquaintance who has a specific and proven stake in the borrower
  • a charity organization, a governmental body or public institution with a program that provides house ownership help to low-income people
    • families with low and moderate incomes, or       
    • homebuyers who are making their first purchase.

Who Can Not Give Gift Money?

A person or entity with an interest in the sale of the property, such as the seller, real estate agent or broker, builder, or an associated entity, may not be the gift donor.

It's worth noting that the lender is allowed to offer the borrower closing cost assistance as long as the aid does not exceed 6% of the sales price and stays within the (total) 6% limit.

FHA Gift Documentation Requirements

Any donation money must be documented by a gift letter signed by both the donor and the borrower. The donation letter must contain the following information:

  • The financial amount of the gift is specified by the donor's name, address, and phone number.
  • Describe the donor's relationship with the borrower, and declare that no payback is necessary.

The lender is able to provide a blank gift letter.

If the gift funds ... Then the lender must ...
are held in the account of the borrower obtain
a copy of the withdrawal documentation establishing that the funds were withdrawn from the donor's account, and
the deposit slip and bank statement of the borrower
are to be made at the settlement, and

are made by way of a certified check drawn on the donor's bank account.
Obtain a

bank statement demonstrating the transaction from the account of the donor, and
A copy of the certified check is required.
Are to be made at settlement, and

are drawn on a cashier's check, a money order, an official check, or another kind of bank check
Require that the donor provide withdrawal documentation or a cancelled check for the gift amount, showing that the funds were taken from the donor's own account.
Are to be made at the settlement, and

are made electronically through wire transfer to the closing agency.
Seek documentation of the wire transfer from the donor.
Which the donor has borrowed, and

There is no evidence of a bank or other kind
To ensure that the money were borrowed from a genuine source rather than a party to the transaction, such as the lender, request that the donor produce written proof of this fact.

Important note: Cash on hand is not a valid source of funds for donor contributions.

Commissions on Real Estate Transactions from the Subject Property's Sale

No changes to the maximum mortgage amount are required since the borrower is a legally licensed real estate agent who will get real estate commissions upon the sale of a property being purchased.

SOURCE: HUD 4155.1 Chapter 5, Section B


In conclusion, gift funds are a great way to help pay for your FHA mortgage. They can be used to cover the down payment, closing costs, and other associated expenses. If you're thinking of using gift funds to finance your home, be sure to consult with your lender to find out if they're allowed. And remember, the sooner you start saving for your down payment, the easier it will be to buy your dream home.

SOURCE: Section B. Acceptable Sources of Borrower Funds

Recommended Reading

  1. How to Buy a HUD Home for Cheap!
  2. Closing Costs on an FHA Loan: What You'll Pay
  3. How to get your condo approved by the FHA.