Gift Funds Documentation for Mortgage: Wire Transfer Trail, Donor Letters, and FHA vs. Conventional Rules

Gift funds are a common source of down payment funds and one of the most frequently mishandled documentation items in the file. Underwriters are looking for a clear paper trail from the donor's account to the borrower's account with no expectation of repayment. Missing or incomplete documentation creates a condition that can delay or kill a closing.

Who Can Give a Gift

Fannie Mae allows gift funds from a relative (by blood, marriage, or legal adoption), a domestic partner, or a fiance or fiancee. FHA allows gifts from relatives, close friends, employers, labor unions, and charitable organizations. VA allows gifts from any source without restriction. Gifts from sellers, real estate agents, or other interested parties are NOT allowed under any program and constitute an IPC violation if disguised as a gift.

Required Documentation

• ✦Gift letter signed by the donor stating: amount, donor's name and relationship to borrower, property address, that no repayment is expected or required
• ✦Evidence of transfer: either a wire confirmation from the donor's bank or bank statement from the donor showing the outgoing transfer
• ✦Borrower's bank statement showing the gift deposit and the source (the deposit entry should match the gift letter amount)
• ✦If the gift is still in the donor's account at the time of underwriting, the donor's bank statement showing sufficient funds and intent to transfer is required before closing

FHA vs. Conventional Differences

Conventional (Fannie/Freddie) allows gift funds for the entire down payment on primary residences with LTV above 80%, but requires the borrower to have their own funds (not gift) for the minimum down payment when LTV is above 95%. FHA allows 100% of the minimum required investment to come from a gift on primary residences; no borrower contribution is required when the LTV is at or below 96.5% and the gift is properly documented. VA and USDA similarly allow gifts to cover the entire down payment. A common error is assuming FHA rules apply on conventional loans: they do not.