What your parents can gift without triggering tax or paperwork
Your parents can give you money for a down payment with no limit, and neither of you will owe federal income tax on the gift. The IRS does not tax gifts, no matter the size. However, if the gift is large enough, your parents may need to file a form with the IRS — not to pay tax, but to report it. The threshold changes each year, but for 2024 it is $18,000 per person per year. If your parents give you more than that in a single year, they file Form 709 with their tax return. This does not mean they pay tax; it means they are using part of their lifetime exemption, a separate limit that is much higher.
Your mortgage lender, not the IRS, is usually the real concern. Most lenders require you to document where a down payment gift came from. They want proof that the money is actually a gift, not a loan you will have to repay. If the lender thinks you are borrowing money secretly, they may deny your mortgage because your debt-to-income ratio would be higher than you disclosed. A gift letter from your parents — a straightforward signed statement saying the money is a gift and does not need to be repaid — is what lenders ask for.
Key Takeaways
- Your parents can give you any amount of money for a down payment without either of you owing federal income tax.
- If your parents give you more than $18,000 in a single calendar year, they file Form 709 with their tax return to report it, but this does not result in a tax bill.
- Your mortgage lender will ask for a gift letter signed by your parents stating the money is a gift and does not need to be repaid.
- Some lenders require the gift to come from a close relative, so confirm your lender's rules before accepting money from a friend or distant relative.
- The gift must be deposited into your bank account before you explore for the mortgage; lenders trace the money back two months.
The gift letter your lender will require
A gift letter is a one-page document your parents sign stating that they are giving you money for your down payment and that you do not have to repay it. Your lender will provide a template or specific wording they want used. The letter should include the amount of the gift, the date it was given or will be given, your parents' names and relationship to you, and a statement that the money is a gift with no expectation of repayment.
Your parents do not need a lawyer to write this. A straightforward signed letter works. Some lenders ask that it be notarized — meaning a notary public witnesses the signature — but many do not. Ask your lender what they need before your parents write anything. Keep the original signed letter and give a copy to your lender when you submit your mortgage process.
When the gift must arrive in your bank account
Most lenders require the gift to be in your bank account for at least two months before you close on the house. This is called the "seasoning period." The lender will ask for bank statements showing the money sitting there, to prove it is not a last-minute loan you forgot to disclose. If your parents give you the money one week before you explore for the mortgage, the lender will likely ask where it came from and may require you to wait before proceeding.
The exact timing varies by lender, so ask yours how long the money needs to be in your account. If you are on a tight timeline, tell your parents when to send the gift so it arrives with enough time to season. Some lenders are flexible if you have a gift letter and can explain the timing; others are strict. Do not assume — ask.
Gifts from relatives versus friends
Most lenders accept gifts from parents, grandparents, siblings, and spouses without question. Some lenders have stricter rules and only accept gifts from blood relatives or relatives by marriage. A few lenders will accept gifts from anyone, but this is less common. Check your lender's policy before your parents or anyone else sends money.
If you are receiving a gift from someone other than a close relative, tell your lender upfront. They may ask for additional documentation, such as proof that the person has the funds to give (a bank statement) and a more detailed gift letter explaining the relationship. It is easier to get this right before the money moves than to explain it after.
How the gift affects your mortgage approval
A gift does not count as income on your mortgage process, which is good — it means it does not increase your debt-to-income ratio or change how much you can borrow. However, the lender will count any money your parents give you as part of your down payment, which reduces the loan amount you need. This usually helps your case, because a larger down payment means lower risk for the lender.
The one exception is if the gift comes with strings attached. If your parents expect you to repay them, or if there is any written or verbal agreement that you will pay them back, you must disclose this to your lender. Hiding a repayment obligation is mortgage fraud. If your parents are giving you the money freely, a straightforward gift letter prevents this problem.
Gifts and your parents' finances
A large gift may affect your parents' finances in ways that matter to them. If they are retired and living on a fixed income, giving away a large sum could reduce their savings. If they are planning to move to a nursing home or assisted living facility, their assets may be counted toward their costs. If they receive means-tested benefits like Medicaid, a large gift could affect their may be able to access. These are your parents' concerns, not yours, but it is worth having the conversation before they send money.
Your parents should also know that a gift does not reduce their taxable estate unless the amount exceeds their lifetime exemption. For most people, this is not a practical concern, but if your parents are very wealthy or have already given away large sums to other people, they may want to talk to a tax professional before giving you a large gift.
What happens if the gift falls through
If your parents promise to give you money but then cannot or change their mind, you have a problem. Your mortgage process is based on the down payment amount you stated, which included the gift. If the gift does not arrive, you may not have enough cash to close, and the lender may deny your loan or delay closing.
The best protection is to have the money in your account before you explore for the mortgage. If that is not possible, get a signed gift letter from your parents before you submit your process, so the lender knows the gift is committed. If circumstances change and your parents cannot give the gift, tell your lender when ready. Do not try to hide it or find a replacement loan at the last minute.
Frequently Asked Questions
Do my parents have to pay taxes on a gift to me?
No. The IRS does not tax gifts. If the gift is over $18,000 in a single year, your parents file Form 709 to report it, but they do not owe tax unless they have already used their lifetime exemption, which is much higher and applies to the total of all gifts they give during their life.
Can my parents give me a gift and then ask me to repay it later?
Legally, yes — but if you do this, you must tell your lender. If your lender finds out you repaid your parents after closing, it could be considered mortgage fraud. The gift letter you sign says the money is a gift with no repayment expected. Stick to that or disclose the repayment plan upfront.
What if my parents want to co-sign my mortgage instead of giving a gift?
Co-signing and gifting are different. A co-signer is legally responsible for the loan if you do not pay. A gift is money with no strings attached. Co-signing affects your parents' debt-to-income ratio and their ability to borrow. A gift does not. If your parents want to help, a gift is usually simpler for both of you.
Can I use a gift from my parents if I am a first-time homebuyer?
Yes. Gifts do not disqualify you from first-time homebuyer programs. In fact, many programs encourage gifts because they reduce the amount you have to borrow. Check the rules of any program you are using, but most treat gifts the same way — as part of your down payment with no negative effect.
What if my lender says the gift is too large?
Lenders do not usually reject gifts for being too large. They may ask more questions or require more documentation to make sure the money is real and not a hidden loan. If your lender raises concerns, ask them specifically what they need to move forward. A gift letter and bank statements usually resolve the issue.