How to Use Gift Funds for a Conventional 97 Loan

Using Gift Funds with a Conventional 97 Loan

For many first-time buyers, saving for a down payment is the biggest obstacle to homeownership. The Conventional 97 program helps by lettig buyers accept cash gifts to cover part or all of their 3% minimum down payment.

Cash gifts can also be used toward closing costs, prepaid taxes and insurance, and required cash reserves.

Who Can Give a Gift?

Fannie Mae sets clear rules for who can provide gift funds. The goal is to ensure the money comes from a legitimate personal source and not from someone who stands to gain financially from the sale.

Eligible gift donors

• Family members by blood, marriage, adoption, or legal guardianship
• Fiancé or domestic partner
• Employer
• Approved nonprofit or community organizations

Ineligible gift donors

• The home seller
• The real estate agent or broker
• Anyone with a financial interest in the sale

If your donor is on the eligible list, you can use the gift toward your down payment and closing costs without any borrower contribution.

Donor eligibility reference guide

How Gift Funds Can Be Used

With a Conventional 97 loan, gift funds can be applied to:

• The entire 3% down payment
• Closing costs
• Prepaid expenses like homeowners insurance and property taxes
• Cash reserves required by the lender

Gift funds on a Conventional 97 may not be used for:

• Cash back at closing
• Post-closing reserve requirements
• Rental property purchases
• Costs that are documented as part of the transaction

There are no minimum borrower contribution requirements if the gift covers 100% of your down payment.

Documentation Requirements for Gift Funds

Gift funds must be verified by the lender before they can be applied to your purchase. This is done to confirm that the funds are a true gift and not a loan.

Typically, you’ll need:

• A gift letter signed by the donor, stating the amount of the gift, the donor’s relationship to you, and that no repayment is expected.
• Proof of transfer showing the movement of funds from the donor’s account to yours or directly to the closing agent.

Submitting these items early in your approval can help avoid underwriting delays.

See also: Loan Requirements for the full Conventional 97 rules.

Documents required for a cash gift for down payment

Timing and Transfer Rules

Lenders generally want to see the gift funds deposited before they verify your assets, which often happens within 60 days of closing.

In some cases, the donor can send funds directly to the closing agent, which may simplify the paper trail.

To keep your closing on track:

• Transfer funds early
• Keep copies of all deposit slips, wire confirmations, or checks
• Make sure the donor’s name matches the information in the gift letter

Common Mistakes to Avoid

While using gift funds is straightforward, small mistakes can cause closing delays. Common mistakes home buyers make include:

• Missing or incomplete gift letters
• No proof of transfer between accounts
• Receiving funds from an ineligible donor
• Last-minute transfers after the lender has reviewed your assets

Clear documentation and early communication with your lender can prevent these issues.

Key Takeaway

Gift funds make it possible to buy a home with a Conventional 97 even if you don’t have savings for the down payment. As long as the donor is eligible and you provide the required paperwork, the process is simple — and it can get you into your new home faster.

Related Resource

For the full program details — including credit score requirements, down payment rules, and PMI guidelines — see our Conventional 97: The Complete Guide To Low-Down-Payment Conventional Mortgages.