FHA Gift Donor

Who Qualifies as an FHA Gift Donor and Why It Matters

When you use gift funds on an FHA loan, the donor is almost as important to the lender as the money itself. FHA wants to see that the funds are truly a gift, that they come from a permitted source, and that there is no hidden repayment agreement that would change your real debt load.

Under current FHA guidelines, acceptable gift donors include:

• Family members by blood, marriage, adoption, or legal guardianship
• A fiancé, fiancée, or domestic partner
• An employer providing housing assistance as a benefit
• A labor union providing member assistance
• A charitable organization that regularly provides housing or down payment assistance
• A government agency or public entity that provides homebuyer assistance
• A close friend with a clear, documented relationship to the borrower

On the other hand, FHA is strict about blocking anyone who could benefit from the transaction from acting as the donor. To protect the borrower and keep the deal fair, the following parties cannot provide gift funds:

• The seller of the property
• The real estate agent or broker for buyer or seller
• The builder or developer
• The lender, loan officer, or mortgage broker
• Any other party with a direct or indirect interest in the sale

In practice, this means that your FHA gift donor should be someone who is helping you for personal or charitable reasons, not someone who gains financially from the closing. Your lender will look at the relationship, the documentation, and the paper trail to make sure the gift meets FHA standards.

Practical Steps for Using Gift Funds on an FHA Loan Without Delays

A well-planned gift can make an FHA purchase much smoother. A poorly documented gift is a common reason for last‑minute underwriting issues. Here is how borrowers and donors can handle the process cleanly from start to finish.

1. Confirm the donor's eligibility early

Before money moves, the borrower and donor should confirm that the donor fits FHA's allowed categories. The lender will typically ask how the donor is related to the borrower and may request basic supporting documentation if the relationship is not obvious.

2. Prepare a complete FHA gift letter

The gift letter is the core document that tells the lender who is giving the money, how much, and on what terms. A solid FHA gift letter will:

• Identify the donor by name, address, and contact information
• State the relationship to the borrower
• Specify the exact dollar amount of the gift
• Identify the property address being purchased, if available
• Clearly state that the funds are a gift with no expectation of repayment
• Be signed and dated by the donor (and often acknowledged by the borrower)

Lenders often provide a template, but the donor should review it carefully and make sure every field is complete and accurate. Any missing detail can trigger follow‑up questions.

3. Document the transfer of funds

FHA does not accept unexplained large deposits. The lender needs a clear paper trail from the donor's account to the borrower or closing agent. Typical documentation includes:

• A copy of the donor's bank statement showing the funds available before the transfer
• A canceled check, wire receipt, or cashier's check showing the transfer to the borrower or settlement agent
• The borrower's bank statement showing receipt of the funds, if the money is deposited into the borrower's account

Lenders use this documentation to confirm that the gift funds came from the donor's own resources and not from an ineligible third party or borrowed funds.

4. Coordinate timing with the lender and closing agent

Gift funds can usually be provided either directly to the borrower before closing or to the settlement agent at closing. The key is to involve the lender early, so the underwriter knows when and how the funds will appear. Last‑minute gifts can create confusion and may delay clear‑to‑close.

5. Understand how much of your contribution can be a gift

FHA generally allows all of the borrower's minimum required investment to come from acceptable gift funds, as long as the property type and other risk factors do not trigger additional overlays from the lender. Your loan officer will explain how much of your down payment and closing costs can realistically be covered by a donor in your specific scenario.

Handled correctly, an eligible FHA gift donor can bridge the gap between what a borrower has today and what is needed to close, without adding new debt or putting the approval at risk. The combination of a clear relationship, a strong gift letter, and a complete paper trail is what gives underwriters confidence to use those funds in the FHA loan.