Family Money for a Down Payment: Gift Letters, Loans and the Paper Trail

A large share of first purchases in Greater Boston have a parent's or grandparent's money in them. Lenders know this and allow it. What they require is that the money really is a gift, that it is documented in a particular way, and that it can be traced from the giver's account to the closing.

The short answer: most mortgage programmes accept a down payment gift from a relative for a home you will live in, with a signed gift letter and records showing the money moving. A loan from family is not a gift and must be disclosed as a loan. The giver, not the buyer, deals with gift tax, and in 2026 that usually means at most a form, not a tax bill.

Who may give, and for which loans

The rules differ by programme, so check with your lender before the money moves.

Conventional loans generally accept gifts from relatives — by blood, marriage, adoption or guardianship — and from a domestic partner or fiancé. Gifts are accepted for a primary residence or a second home, not for an investment property.
FHA loans accept gifts from a wider group, including relatives, an employer, a close friend with a documented relationship, and certain charitable and government programmes.
VA loans accept documented gifts.
A minimum from your own funds is required on some loans. A purchase of a two- to four-family at more than 80% loan-to-value is the common case where the buyer must contribute part of the down payment themselves.

Down payment assistance from state and local programmes is a separate subject, covered in first-time buyer programmes in Massachusetts.

The gift letter

The lender will supply a form or tell you what it must say. It typically includes:

The giver's name, address, phone number and relationship to the buyer.
The amount, and the date it was or will be given.
The address of the property being bought.
A statement that no repayment is expected, in any form.
The giver's signature.

Sign it truthfully. That last statement is the one that matters.

The paper trail: where the money came from and where it went

Lenders verify gifts the same way they verify every other dollar of a down payment. The pre-approval checklist explains the sourcing rules; for a gift, expect to show:

The giver's ability: a statement from the account the money came from, showing it there before the transfer.
The transfer itself: the giver's withdrawal and your deposit, or a wire directly to the closing attorney's account.
No unexplained detours. Money that passes through a third account, or arrives as cash, raises questions that take time to answer.

Timing helps. A gift deposited and documented before you apply is simpler than one arriving the week of closing. A wire straight to the closing attorney is clean, but confirm the wiring instructions by phone with a number you already know — wire fraud at closing explains why. Money from abroad needs extra documentation, which buying when you are new to the United States covers.

A gift of equity is a variation: a parent selling a house to a child below its value, with the difference counted as the down payment. Lenders allow it with the right documentation, and it has tax consequences for the seller worth discussing with an accountant.

A loan from family is not a gift

If anyone expects to be repaid — even informally, even "whenever you can" — it is a loan, and it has to be disclosed to the lender as one. It may count in your debt-to-income ratio, and some loans do not allow borrowed money for the down payment at all.

Calling a loan a gift to get approved is not a technicality. A knowingly false statement on a mortgage application is a federal crime, and the giver who signs a false gift letter is part of it.

A family that wants the money repaid can do it openly: a written note, interest at or above the rate the IRS publishes for family loans, and possibly a recorded second mortgage, which protects the lender-relative if the house is sold. Tell your mortgage lender about it from the start.

Gift tax: what the giver actually has to do

The buyer receiving a gift owes no tax on it. The rules fall on the giver, and they are less alarming than people expect.

The annual exclusion is $19,000 per giver per recipient in 2026, the same as 2025. Two parents giving to a married couple can give $76,000 in a year without filing anything.
Above the exclusion, the giver files a federal gift tax return, Form 709, by the following April. Tax is owed only once lifetime gifts exceed the lifetime exemption, $15 million per person in 2026 under the 2025 federal tax law. Almost nobody reaches it.
Massachusetts has no gift tax. Large lifetime gifts can still matter to how the Massachusetts estate tax is calculated, so a giver with a substantial estate should raise the gift with their estate attorney. Passing on a Massachusetts home covers the estate tax.

Co-signers and co-borrowers: the other way family helps

Instead of a gift, a parent can join the loan. Many programmes allow a non-occupant co-borrower whose income helps the buyer qualify.

It is a bigger commitment than a gift. The parent is fully liable for the loan, it appears on their credit and counts against their own borrowing, and if they are also on the deed they own part of the house, with consequences for their estate and for any future sale. Decide that deliberately, with advice, and not at the lender's desk.

Structure it so it does what everyone intends

Talk about fairness among siblings before, not after. Some families treat a down payment gift as an advance on an inheritance and write that down.
If a parent wants a share of the house, that is co-ownership, not a gift, and needs its own agreement.
Keep copies of the gift letter, the statements and the wire confirmations with your closing documents.

The first-time buyers page and the buyer's guide cover the rest of the sequence.

General information as of 2026, not legal, tax or lending advice. Gift rules vary by loan programme and lender; tax figures are those the IRS published for 2026 and change annually.