Mortgage Gift Funds Rules: FHA, VA and USDA Loans

Published by the Modern Lending Solutions editorial team. Last reviewed: October 30, 2026.

Short answer: a gift is money or equity given with no expectation of repayment. On an FHA loan, HUD lists who may give it, bars anyone with an interest in the sale, and requires a gift letter signed by you and the donor plus proof of the transfer. VA’s lender handbook has a similar gift letter rule. Money a relative expects you to repay is a loan, not a gift, and has its own rules. This page covers federal rules only. It is general information, not legal, tax or financial advice.

FHA: who may give

HUD Handbook 4000.1 defines gifts as contributions of cash or equity with no expectation of repayment, and says gifts may come from (II.A.4.d.iii(F), HUD, Handbook update issued August 12, 2026, read October 30, 2026):

your family member (the Handbook defines the term; it covers relatives such as a parent, grandparent, child, spouse or domestic partner, sibling, aunt or uncle, and in-laws);
your employer or labor union;
a close friend with a clearly defined and documented interest in you;
a charitable organization; or
a governmental agency or public entity with a program that helps low- or moderate-income families or first-time homebuyers buy a home.

The Handbook also says cash on hand is not an acceptable source of a donor’s gift funds. The National Housing Act requires an FHA borrower to pay at least 3.5 percent of the appraised value in cash or its equivalent, and bars those funds from coming from the seller, anyone else who financially benefits from the transaction, or anyone reimbursed by them (12 U.S.C. 1709(b)(9)(A) and (C), LII, read October 30, 2026). HUD calls this the Minimum Required Investment (MRI) and says none of it may come from those sources, though some may pay other closing costs within HUD’s limits (II.A.4.d.ii).

FHA: the gift letter and the paper trail

The Handbook says the lender must get a gift letter signed and dated by the donor and you that includes:

the donor’s name, address and telephone number;
the donor’s relationship to you;
the dollar amount of the gift; and
a statement that no repayment is required.

The lender must also document the transfer. If the gift is verified before settlement, HUD lists the donor’s bank statement showing the withdrawal, a copy of the donor’s canceled check, or a copy of the donor’s withdrawal receipt, each with evidence of the deposit into your account, or evidence of an electronic transfer from the donor’s account to yours. If it is verified at settlement, HUD lists evidence of an electronic transfer from the donor’s account, a bank certified check, a cashier’s check or another official bank check paid to the settlement agent. Whenever the funds arrive, the lender must be able to make a reasonable determination that they did not come from an unacceptable source (II.A.4.d.iii(F)(3)).

FHA: gifts of equity

Only family members may give equity credit as a gift on a property they are selling to another family member, with the same gift letter (II.A.4.d.iii(F)(4)). Ask the lender how the gift of equity will show on the sales contract and the Closing Disclosure.

Example: the FHA minimum investment

This example is only for the math, with an example value and gift, not terms from any lender. It assumes an Adjusted Value of $300,000 and a base loan at 96.5% of that value.

Item	Amount
Adjusted Value (example)	$300,000
Minimum Required Investment: $300,000 × 3.5%	$10,500
Base loan amount: $300,000 − $10,500	$289,500
Gift from a family member (example)	$8,000
Your own funds for the rest of the MRI: $10,500 − $8,000	$2,500

Closing costs, prepaid items and the upfront mortgage insurance premium are on top of this; see FHA mortgage insurance premiums.

A gift or a loan from a relative

If a relative expects to be repaid, it is a loan, and a gift letter saying otherwise would be false. The National Housing Act tells HUD to treat amounts borrowed from a family member as cash or its equivalent for the 3.5 percent investment, provided that if the loan is secured by a lien on the home, the lien is subordinate to the mortgage and the two together do not exceed 100 percent of the appraised value plus certain fees (12 U.S.C. 1709(b)(9)(B)). The Handbook lists more conditions for a second lien held by a family member, among them that it is disclosed at application, its payments count in your total mortgage payment, it gives no cash back to you apart from listed refunds, it has level monthly payments if it has periodic payments, no prepayment penalty, and no balloon payment within 10 years (II.A.4.d.iii(J)(3)). See down payment assistance second loans. HUD lists unsecured signature loans and cash advances on credit cards as unacceptable borrowed funds for the down payment; see personal loans for a down payment.

VA loans

VA’s Lenders Handbook says a gift can be provided by a donor with no affiliation with the builder, developer, real estate agent or any other interested party to the transaction, and that the gift letter must give the dollar amount, the donor’s statement that no repayment is expected, and the donor’s name, address, telephone number and relationship to you (Chapter 4, Topic 4, subsection d, VA, updated August 26, 2026, read October 30, 2026). The lender must verify that the funds were moved to your account or will be documented as received by the closing agent; VA lists evidence of your deposit, a copy of the donor’s check or electronic transfer to the closing agent, or the Closing Disclosure showing receipt. The same chapter says gift funds cannot be used to meet reserve requirements. See VA loan entitlement.

USDA guaranteed loans

We found no gift letter rule in the USDA guaranteed loan regulation; 7 CFR 3555.151 sets eligibility requirements and does not address gifts (eCFR, text up to date as of October 28, 2026). The regulation says temporary, nonrecurring or sporadic income, including gifts, is not counted in repayment income or annual income (7 CFR 3555.152(a)(4)(iii) and (b)(5)(v), eCFR), and it defines a funded buydown account as one funded by the lender, the seller or a third party gift (7 CFR 3555.10, eCFR). USDA’s documentation rules for gifts are in its lender handbook (HB-1-3555), which we could not retrieve on the read date, so ask the lender what it needs. See USDA rural home loan basics.

A note on the citations

24 CFR 203.19 is HUD’s qualified mortgage rule, not a gift rule (eCFR); the FHA gift rules are in the National Housing Act and HUD Handbook 4000.1 cited above.

Gift tax

The IRS says the donor is generally responsible for paying any gift tax, that the annual exclusion is $19,000 per donee for 2026, and that making a gift does not ordinarily affect federal income tax (IRS, last reviewed or updated July 23, 2026, read October 30, 2026). The donor should ask a tax professional about their own case.

Questions to ask the lender

Which donors do you accept for this loan type, and do you have a gift letter form?
Should the gift be in my account before closing or sent to the settlement agent?
What bank records do you need from the donor?
Can a gift pay closing costs as well as the down payment?
If a relative is lending me money instead, how must that loan be set up and disclosed?

Checklist

Confirm the donor is on the lender’s list and has no interest in the sale.
Have the donor send the money by check or electronic transfer, not cash.
Sign and date the gift letter with the donor; check the amount matches the transfer.
Keep the bank statements that show the money leaving the donor’s account and arriving in yours.
Tell the lender at application about any money a relative expects you to repay.

To find housing counseling agencies that HUD has vetted, use the CFPB housing counselor search. You can submit a complaint at consumerfinance.gov/complaint.

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Sources

Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.

Gift Funds for a Down Payment: FHA, VA and USDA Rules