Family members helping with a down payment is one of the most common ways first-time buyers get into a home. It is entirely allowed — but only if the gift is documented the way underwriting requires. Get the paperwork wrong and a perfectly legitimate gift can stall your loan. Nothing here is a commitment to lend, and program rules vary.
Who can gift, by program
The first question is who the donor can be, and that depends on the loan program. Conventional and government programs each have rules about acceptable gift sources. In general, gifts from family members are widely accepted, while gifts from someone with an interest in the sale — like the seller or the agent — are restricted or prohibited. Some programs are more flexible about donors than others, so confirm the rules for your specific loan before the money moves.
The gift letter
Every gifted down payment needs a gift letter. It is a signed statement from the donor that says, in effect, the money is a true gift with no expectation of repayment. That last part matters: if the funds are actually a loan the donor expects back, it is not a gift, and treating it as one misrepresents your obligations. The letter typically states the amount, the relationship, and that no repayment is expected.
Sourcing and seasoning
Underwriters want to trace the money. Expect to document the transfer — where the funds came from and how they reached you. Depending on the situation, the lender may want to see the donor's ability to give the gift and a clear paper trail from the donor's account to yours or to closing. Funds that have been in your account for a long time are "seasoned" and draw less scrutiny; a large, recent, unexplained deposit raises questions. The cleaner the trail, the smoother the file.
Gift of equity
There is a special case worth knowing: a gift of equity, used when you buy a home from a family member for less than its market value. The difference between the sale price and the value can serve as your down payment, gifted in the form of equity rather than cash. It has its own documentation, but it is a legitimate and useful tool for family sales.
A tax note for the donor
Gifts can have tax-reporting implications for the person giving them, depending on the amount and the year's rules. That is the donor's question for their own CPA — this is general information, not tax advice, and the buyer's loan is not affected by the donor's tax reporting.
The Alliance take
We tell families exactly what the gift letter needs to say and how to document the transfer before the funds move, because doing it in the right order prevents the scramble later. A well-documented gift is a non-event in underwriting.
Planning to use gift funds? Start an application and we will spell out the documentation up front.