Gifting money for a mortgage down payment requires a formal gift letter stating the funds are a bona fide gift, not a loan, and do not need to be repaid. The donor must provide evidence of the transfer (e.g., bank statement, wire transfer, or check) to the lender. Funds should ideally be transferred directly to the closing agent to simplify documentation.
If you've recently received a financial gift from a family member or inherited money from a loved one, you may wonder if those funds can help you purchase a home. The good news is that, yes, you can usually use gifted or inherited money toward a down payment.
Yes, you can use gifts to help make up a mortgage deposit for a first time buyer mortgage.
More paperwork than just the gift letter The gift letter is just the first step. Lenders will also want: Bank statements from the donor showing that they had the money before giving it away A copy of the canceled check, a wire transfer confirmation, or bank transfer documentation are all examples of proof of transfer.
Annual gift tax limit
In 2024 the tax-free gift exclusion was $18,000. In 2025 that number rose to $19,000. That means, in 2025, gifts above $19,000 must be reported to the IRS on Form 709 in 2026 (the year after the gift was given).
Yes, you can give your son $100,000 tax-free in 2025 by utilizing the annual gift tax exclusion and your lifetime exemption, but you'll need to report the gift to the IRS on Form 709 since it exceeds the $19,000 annual limit, though you won't pay tax unless you exceed your much larger $13.99 million lifetime gift/estate tax exemption. The gift is considered yours (the giver) for tax purposes, not your son's.
Rules for Gifting Money to Family for a Down Payment in 2026
What Should a Gift Letter Should Include?
Yes, you can give your daughter $100,000 to buy a house, but you'll need proper documentation for her mortgage lender and you'll likely need to file a gift tax return (IRS Form 709) because the amount exceeds the annual exclusion, though it won't usually result in taxes unless you've used up your large lifetime exemption. Lenders require gift letters proving the funds aren't a loan, and you can avoid gift tax impact by gifting up to the annual limit ($19,000 per person in 2025) each year or by using your substantial lifetime exemption.
THE IMPORTANCE OF DOCUMENTATION
In addition, lenders may ask for proof of the donor's ability to provide the funds (like a bank statement) and a paper trail showing when the money was transferred.
For first-time buyers, this might include using gift funds for a down payment, which can reduce upfront costs. Some borrowers may also consider personal loans from family members to pay down debt or even ask a parent to cosign on the mortgage. First-time homebuyers often rely on outside help.
For example, for conventional loans with more than 20% down, all of the down payment can be gifted. If it's less than 20%, then a portion of the down payment must come from the borrower's own funds. With FHA loans, all of the down payment can be gifted unless the borrower's credit score is below 620.
Yes, you can transfer $50,000 to a family member, but you'll need to report it to the IRS by filing Form 709 because it exceeds the 2026 annual gift tax exclusion of $19,000 per person, though you likely won't owe tax unless your total lifetime gifts surpass the very large lifetime exemption. For large cash transfers, banks also report it to FinCEN, and you might need a formal gift letter for things like a home down payment to prove it's not a loan.
The "$100,000 loophole" for family loans refers to a tax rule where lenders avoid reporting imputed interest if the total loan amount (plus any other outstanding loans to that borrower) is $100,000 or less, and the borrower's net investment income is $1,000 or less; otherwise, the lender's taxable imputed interest is limited to the borrower's actual net investment income, avoiding the higher Applicable Federal Rates (AFR) normally required, making it a way to offer lower-interest loans with minimal tax hassle for the family.
Yes, you can likely give your daughter $50,000 tax-free by using your annual gift exclusion and lifetime exemption, but you'll need to file Form 709 with the IRS to report the gift exceeding the annual limit ($19,000 in 2024/2025). The $50,000 gift reduces your large lifetime exemption (over $13 million in 2024/2025), meaning you won't pay tax on it unless your total lifetime gifts exceed that huge amount; your daughter never pays gift tax on the money.
The IRS primarily learns about large gifts when you file Form 709, the Gift Tax Return, for amounts exceeding the annual exclusion (e.g., $19,000 per person in 2025). They can also discover gifts through third-party reporting (banks reporting large cash transfers), audits of your estate, or by matching transactions to public records, especially for significant asset transfers like property, which might trigger property tax reassessments.
There are a few steps to using a gifted deposit for buying a home.
Does A Mortgage Gift Letter Get Reported To The IRS? Whether mortgage gift money gets reported to the IRS depends on how much you receive. For 2024, the annual gift tax applies to amounts over $18,000. This means any gift of $18,000 or less won't incur the federal gift tax and doesn't need to be reported to the IRS.
You might need to order a cashier's check online or set up a wire transfer, which could take time. Alternatively, you could transfer the money from the online bank to your account at a local bank or credit union.
Participating lenders cannot accept down payment funds from unapproved sources such as a payday loan, credit card cash advance, “pink slip” type loans, etc. The lender is required to make sure the borrower has not gone further into certain kinds of debt in order to make the down payment.
For 2025, the federal tax-free gift limit (annual exclusion) is $19,000 per recipient, meaning you can give up to this amount to as many people as you want without filing a gift tax return or using your lifetime exemption, while married couples can gift up to $38,000 per person. Gifts exceeding $19,000 must be reported on Form 709 and reduce your lifetime gift/estate tax exemption, which is $13.99 million for 2025.