Given Hawaii's high property values, many homebuyers receive financial help from family members to cover their down payment. Using gift funds is perfectly acceptable for most loan types, but there are specific rules and documentation requirements that must be followed carefully.
Gift Fund Rules by Loan Type
Conventional Loans: Gift funds can cover the entire down payment if you're putting 20% or more down. For down payments less than 20%, at least 5% must come from your own funds on some programs, though many now allow 100% gift funds. The gift must come from a family member, domestic partner, or fiancé.
FHA Loans: Gift funds can cover 100% of the 3.5% down payment. Acceptable donors include family members, employers, labor unions, close friends with a documented interest, and charitable organizations.
VA Loans: Since VA loans require no down payment, gift funds are less commonly needed but can be used for closing costs. There are fewer restrictions on who can provide gift funds for VA loans.
The Gift Letter
Every gift fund transaction requires a formal gift letter that includes the donor's name, address, and relationship to the borrower, the dollar amount of the gift, a statement that no repayment is expected, the property address, the donor's signature, and the date.
Your lender will provide a gift letter template. Both the donor and borrower should sign it.
Documentation and Paper Trail
Lenders need to verify the source of gift funds. This typically requires the donor's bank statement showing the withdrawal, the borrower's bank statement showing the deposit, and a copy of the check or wire transfer confirmation.
Critical timing tip: Gift funds should be deposited into your account at least one full bank statement cycle before applying for the mortgage, if possible. This creates a cleaner paper trail and can simplify underwriting.
Common Mistakes to Avoid
Never deposit cash gifts — always use checks or wire transfers that create a paper trail. Don't commingle gift funds with other large deposits. Ensure the gift letter is completed before the funds are transferred. Don't accept gifts from non-allowable sources for your loan type.
Tax Implications
For 2026, the annual gift tax exclusion is $18,000 per person. Gifts above this amount may require the donor to file a gift tax return, though they likely won't owe any tax due to the lifetime exemption. Consult a tax professional for specific guidance.
Working With Your Lender
Discuss gift funds with your lender early in the process. They can guide you on the specific requirements for your loan type and help ensure the documentation is handled correctly from the start. Proper planning prevents last-minute scrambles that can delay closing.