By Frederick Blum, Broker/Owner of Blum Realty Group
A gift from family can get you into a San Diego home sooner, shrink the mortgage you need, or leave you with savings after closing. The real work starts before any money moves: confirm that your loan allows the gift, that the person giving it qualifies as a donor, and that the transfer will leave the paper trail your lender needs.
“My parents are helping with the down payment” is a fine place to start. The plan needs more than that: how much, when the money will be there, whether they expect to be paid back, and what you can comfortably afford every month once the gift has been spent.
This guide is about money a family member gives you to buy a home. Buying that relative’s own home with a gift of equity is a different deal, covered in our guide to buying from family with a gift of equity. If the relative would join the loan instead, see the co-signer and co-borrower rules.
First, agree on whether this is a gift, a loan or a shared purchase
Have this conversation in plain terms. A gift is not supposed to come with a quiet promise to pay the money back. A parent who expects monthly payments, repayment when you sell, or a share of the proceeds is proposing something else, and that arrangement has to be disclosed and reviewed.
The Consumer Financial Protection Bureau’s down payment guidance explains that some loans allow gift funds if you show where the money came from and the donor signs a statement that it is a gift, not another loan. Do not sign a statement that no repayment is expected while you have a side agreement with your family to pay it back.
Also settle on an amount the donor can give without straining their own finances. “Up to $75,000” and “$75,000 for certain by closing” lead to different purchase plans. If the money depends on selling stock, moving an account or closing on another property, flag that early.
Tell the lender about the gift before you choose the loan
Ask the loan officer to look at who the donor is to you, the amount, the account it is coming from and how you will use the home. Then confirm how much of your own money has to go in, whether the gift can cover closing costs or reserves, and which documents are needed. The answers change with the loan program, the type of home and how the purchase is financed.
For example, Fannie Mae’s current personal gift rules allow qualifying gifts for a principal residence or second home, but not for an investment property. Its rules on how much must be your own money differ for some second-home purchases and some homes with more than one unit. Do not assume those rules carry over to FHA, VA or any other program.
Under those Fannie Mae rules, the donor signs a letter stating the amount, the relationship and their contact information, and confirming that no repayment is expected. The lender also verifies that the money is there or has been transferred. Use the form the lender asks for and its secure document process, not a generic letter downloaded the night before.
A gift solves the cash side. Your lender still reviews the rest of the application: income, debts, credit and the housing payment you are taking on. If you are comparing programs, our FHA versus conventional guide explains why the down payment is only one part of the picture.
Separate the gift, cash to close and money left afterward
Take a made-up $800,000 purchase with a planned $80,000 down payment and $18,000 in closing costs and prepaid items paid by the buyer. The figures are only an illustration, not a quote and not a sign that you would qualify for that loan.
- Family gift: $60,000.
- Buyer’s available savings: $45,000.
- Total available funds: $105,000.
- Down payment plus the estimated closing costs: $98,000.
- Remaining savings: $7,000.
The family may feel the $60,000 has made the purchase comfortable. You still have to ask whether $7,000 is enough for the move, the first repairs and your own emergency cushion, and whether the lender requires more in reserves.
If a $20,000 deposit has already been paid out of those same funds and is credited toward the purchase, it is part of the $98,000, not an extra $20,000. In this simplified example, you would still need $78,000 at closing. Real closing figures will include the credits, prorations and adjustments for your transaction.
Go over the different ways to use the gift with the lender. Putting every dollar into the down payment means borrowing less, but holding some of it back, where the rules allow, may do more good covering closing costs or reserves. The right choice depends on what the loan permits, how it is priced and what matters most to you. Then look at the full San Diego home costs budget, with taxes, insurance, HOA dues and maintenance.
Decide how the gift will be transferred before anyone sends money
Ask whether the lender wants the gift sent to your account or straight to the closing agent, and what proof it will accept. The Fannie Mae guidance above recognizes documented transfers to either place; your file still needs the lender’s sign-off and records that match.
A good paper trail links the donor, the account the money came from, the outgoing transfer and the receiving account or escrow receipt. Changing the amount, the sender or the destination after the review can mean another round of document requests. Tell the loan officer before you change anything.
If the donor needs time to sell an investment or move money between banks, build that time into the calendar. Send complete statements and transfer confirmations through the lender’s secure process. Your first message to me does not need account numbers, Social Security numbers or copies of anyone’s bank statements.
Before you wire anything, confirm the closing agent’s instructions by calling a phone number you already know is theirs. A last-minute email changing where the money should go is a reason to stop and check, not a reason to hurry.
Make the gift timeline part of the offer plan
There can be a big gap between “the family will chip in at closing” and “the buyer can fund the first deposit on time.” Work out which money covers each contract deadline before you make an offer. The deposit amount and the dates come from your purchase agreement, not from an example in an article.
The CFPB’s closing document guidance says to confirm whether gifts are allowed with the loan you chose and to answer the lender’s requests for documents. Keep the loan officer in the loop if the promised gift changes while the purchase is underway.
Tell the lender any time the gift amount changes. A smaller gift may mean more of your own cash, a different loan or a new plan; a bigger gift needs review too. Before you remove your financing contingency, confirm the remaining loan conditions with the lender and go over the contract with your agent.
Using a family gift for an assumable purchase
If you are assuming the seller’s loan, put the gift question to the team approving that assumption. The rules for a new conventional loan do not automatically apply when you take over an existing FHA or VA mortgage.
Start with how much cash this particular home needs. The gift can help cover the gap between the price and the existing loan balance, but it does not change the balance you are taking over. Work through the equity gap calculation and the separate assumption closing costs before you decide how much family help you need. Keep required reserves and the savings you want after closing separate from the money that goes into the purchase.
Before the donor sends any money, get answers to four questions:
- Whose money is it? Name the donor, their relationship to you, the amount and where the money is coming from. Tell the processor if the donor also has a role in the sale or expects a share of ownership, and ask whether that is allowed for this assumption.
- What is the money for? Say whether it covers the equity gap, closing costs or another part of the plan. Ask which amounts the processor will accept and whether required reserves have to come from another eligible source. Being allowed to use a gift for one purpose does not mean it counts for every purpose.
- What records and transfer method does the processor require? Get its gift letter instructions and the proof it accepts for the source and the transfer. Confirm whether the money should go to your account or straight to escrow, and keep the records that tie together the sender, the amount and the receiving account. Have the donor send private financial documents only through the secure channel the processor asked for, once you have confirmed it is real.
- What approval is still outstanding? Ask whether the donor and the funding plan have been reviewed, which documents are still missing and which changes would trigger another review. A family promise, a signed gift letter and accepted proof of funds are three different stages, not one.
The program matters. For an FHA assumption that requires a credit review, HUD sends the review through its manual underwriting rules. Those rules call for a gift letter signed and dated by the donor and the borrower that names the donor, the relationship and the amount and states that no repayment is required, along with acceptable proof of the transfer. They also say that leftover gift funds cannot be counted as cash reserves. Confirm how your gift would be treated with the processor handling the file, using the current HUD handbook.
For a VA assumption, VA’s assumption guidance points the processor to VA’s credit underwriting standards. Ask what gift rules apply to that file. Do not borrow the conventional-loan donor rules from earlier in this article, and do not assume the FHA reserve rule applies to a VA loan.
If a relative expects to be paid back, disclose it as a loan instead of signing a statement that no repayment is expected. Its payment, terms and any lien need their own review. If the gift amount or the way it is transferred changes, tell the processor before you keep counting on the original cash-to-close plan.
I can help line up the home, the offer deadlines and the cash you need while the assumption team reviews the financing. Our FHA and VA assumption guide explains that bigger picture. When you first reach out, the amount and timing of the family help is all I need; account numbers, statements and the donor’s private details belong in the processor’s secure document process.
Sort out ownership and taxes separately from the loan approval
A relative’s money does not, by itself, decide who goes on the deed or the mortgage. If the donor also expects to own part of the home, live in it or get a return, bring that to the lender and to a lawyer before you sign anything. A shared purchase needs a clear plan for expenses, decisions and the eventual sale.
The donor should also get advice on gift tax reporting. The IRS explains that gift tax rules cover transfers of money or property for less than full value. Loan approval, tax reporting and family expectations are three separate questions; a lender accepting the gift letter does not answer all three.
At Blum Realty Group, I can help line up the home search, the offer terms and the purchase deadlines with the financing plan. The best first conversation is about the home you want, the amount you can comfortably spend and the family money you can document and count on.
Questions buyers ask about family gift funds
Should my relative transfer the money before I speak with the lender?
No. Confirm with the lender first who can be the donor, where the money can come from and how it should be sent. That way the family keeps the right records and does not move the money through accounts it never needed to touch.
Can a gift help if my income is too low for the proposed payment?
A gift can cut the amount you need to borrow, but the lender still has to approve the loan on your full application. Look at the payment and the debts you would be left with; a bigger gift does not fix every qualification problem.
Can I repay the gift after closing?
If paying it back is part of the deal, disclose that from the start. It should not be presented to the lender as an unconditional gift with no repayment expected.
Can a family gift cover the equity gap on an assumable home?
It can, if the loan program and the assumption processor accept the donor, the source, the use and the paperwork. Get that review before you count on the gift. Work out the equity gap, the closing costs and the required reserves separately, and disclose any expectation of repayment or ownership in return for the money.