Using gift money for a down payment: the paper trail lenders want

Gift funds are the most common source of down-payment money for first-time buyers and the most common reason a file gets stuck in underwriting. The money itself is welcome. What lenders care about is proving it is a gift, not a loan, and that it came from someone allowed to give it.

This is the part of a Dream Home Jar that matters most, so read it before the money starts moving. Nothing on this page is legal or lending advice — your lender's guidelines control, and they change.

Who can give

• Conventional loans (Fannie Mae / Freddie Mac): relatives by blood, marriage, adoption or legal guardianship, a fiancé(e), or a domestic partner. Friends, coworkers and your agent generally cannot be the source.
• FHA: relatives, close friends with a 'clearly defined and documented interest' in you, an employer or labor union, a charitable organization, or a government homebuyer program.
• Nobody with a financial interest in the sale: not the seller, not the agent, not the builder. A 'gift' from an interested party is treated as a sales concession.

What a gift letter says

• The donor's name, address, phone and relationship to you.
• The dollar amount and the date of the transfer.
• The address of the property being purchased.
• A sentence stating the money is a gift with no expectation of repayment.
• Signatures from the donor and from you. Most lenders have a one-page template; use theirs.

How to move the money

One transfer, from the donor's account to yours, with a paper trail: a bank statement showing it leave their account and a statement showing it land in yours. Lenders ask for the donor's statement to prove the funds were theirs. A wire or a cashier's check is easiest; a cash deposit is the hardest thing in the world to source.

Timing matters. Money that has been in your account for two full statement cycles is 'seasoned' and usually needs no explanation. Money that arrives in the sixty days before closing needs the full gift-letter treatment. Both are fine; surprises are not.

What about jar pledges from friends?

Gifts from people who are not eligible donors are still gifts — they just cannot be counted toward the down payment on a conventional loan. Route them to sub-jars that are not part of the lender's calculation: moving day, the home warranty, appliances, furniture. Relatives fund the down payment and closing costs; everyone else funds the house. That split is built into the jar for exactly this reason.