If you’re struggling to come up with the down payment for your new home, you’re not alone. Many first-time homebuyers turn to family and friends for help. But can they actually contribute? The good news is yes, but there are some important rules and guidelines to follow, depending on the type of loan you’re applying for. 

Let’s break it down using Fannie Mae, Freddie Mac, and FHA guidelines to help you understand how family and friends can assist you with your down payment. 

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🏠 Can Family and Friends Help? 

The simple answer is yes—family and friends can help with your down payment, but there are specific rules for gift funds. Here’s how it works: 

  • Gift funds are allowed for your down payment, closing costs, and even reserves (savings). However, the gift must be properly documented and follow certain guidelines to ensure it complies with Fannie Mae, Freddie Mac, and FHA rules. 
  • Importantly, the donor (the person giving you the money) must provide a gift letter, which verifies that the money is a gift and not a loan. This means you don’t have to pay it back. 

💡 Guidelines for Accepting Gift Funds 

1. Who Can Gift Funds? 

  • Fannie Mae and Freddie Mac (Conventional Loans): 
    • Immediate family members are the primary donors allowed under these guidelines, such as: 
      • Parents 
      • Siblings 
      • Grandparents 
      • Children (if they’re helping) 
    • Extended family may also contribute in some cases (like aunts, uncles, or even cousins), but it’s less common and can be subject to stricter documentation. 
  • FHA Loans: 
    • The guidelines are more flexible than Conventional loans, and immediate family members and close friends can contribute as gift fund donors. FHA may allow more lenient documentation, but a gift letter is still required. 
  • Non-family members (such as friends, co-workers, or distant relatives) may contribute in certain situations if the lender is willing to accept it, but the relationship must be documented and typically must be close enough to prove that it’s not a loan. 

2. Gift Letter Requirements 

  • A gift letter is essential for verifying that the money is not a loan and that the giver does not expect it to be repaid. The letter should include: 
    • The donor’s name, address, and relationship to the borrower. 
    • The amount of the gift. 
    • A statement that the gift is not a loan and does not require repayment. 
    • The donor’s signature. 
  • Fannie Mae and Freddie Mac require the gift letter to be signed by both the donor and the borrower. 
  • For FHA loans, the gift letter needs to be submitted along with any other supporting documentation from the lender, such as the donor’s bank statement showing that the funds came from their account. 

3. Source of Funds 

  • Fannie Mae and Freddie Mac: Gift funds must come from the donor’s personal accounts and be properly sourced to ensure no issues arise during the underwriting process. 
  • FHA loans are more lenient, but they still require documentation showing where the money came from (such as the donor’s bank account). 
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