Down Payment Gift Rules for Borrowers

For low and moderate-income borrowers with limited savings, including first-time homebuyers, it can be a struggle to come up with down payment funds, so a substantial amount of money can be donated or gifted to help them.

In high-cost areas like Orange County, L.A., and San Diego counties, the maximum conventional loan limits are $636,150 for single-family homes, and multi-unit homes (i.e. 2-unit, 3-unit, 4-unit) can range to $1,223,475.

mortgage down payment gift

Getting An FHA Loan Without A Down Payment

Most home buyers who apply for an FHA loan bring in a 3.5 percent down from their own bank accounts.

However, the FHA program allows borrowers to receive the down-payment as a gift. The gift can come from any of the following sources.

Your relative

A fiancé or fiancée

Your employer or labor union

A close friend with a “clearly defined and documented interest in the borrower”

A charitable organization

Govt. agency or public entity that provides home ownership assistance

Not Allowed
You may not get the gift from the seller, a real estate agent or broker, the home’s builder, or an associated entity.

These are known as interested parties. In other words, they are individuals or groups that can profit from the home sale.

Conventional Mortgages
Conventional 97 mortgage from Fannie Mae and the Home Possible™ mortgage from Freddie Mac, each of which demand only 3% down will also permit cash gifts for down payment.

Fannie Mae permits gift funds for all of the down payment and closing costs. The borrower is not required to put any of their own funds toward the purchase. The restrictions are only first time home buyers are allowed and the loan amounts are limited to $636,150 for single-family homes in Orange County, CA. So, a full 3% down can be all gift.

Tax Implications for the Giftor
Other important limits to the amount the person gifting the money are taxes. The IRS allows a person (or individual) to gift as much as $14,000 annually without the gift being taxed. So, keep that in mind as you may want to receive separate amounts of $14,000 from different people.

A 3-percent down payment of $636,150 is $19,084, so $5,084 would be taxed unless the gift is $14,000 from one person and the other $5,084 from another.