Down Payment Gifts: The 2026 Lender and IRS Rules

Plenty of first time buyers in Greater Boston get to a closing table with help from their parents, and that same gift is where a lot of the last minute underwriting questions I see come from. Two sets of rules apply, the lender’s and the IRS’s, and they answer different questions.

The lender’s rule: how much can be a gift

For a conventional loan sold to Fannie Mae, the Selling Guide’s minimum borrower contribution table is short. On a one unit principal residence, a contribution from the borrower’s own funds is not required at any loan to value, meaning however large the loan is against the price, and all funds needed to complete the transaction can come from a gift. The same is true on a two to four unit principal residence or a second home when the loan is 80 percent of value or less. Above 80 percent on a two to four unit home or a second home, the borrower has to put in 5 percent from their own funds.

Who can give

Fannie Mae accepts a gift from a relative, meaning the borrower’s spouse, child or other dependent, or any other individual related by blood, marriage, adoption or legal guardianship, and from a non-relative who shares a familial relationship: a domestic partner or the partner’s relative, a person engaged to marry the borrower, a former relative, or someone with a long-standing familial-like or mentorship relationship. The donor may not be, or be affiliated with, the builder, the developer, the real estate agent or any other interested party to the transaction.

The gift letter

The letter has to specify the actual or the maximum dollar amount of the gift, include the donor’s statement that no repayment is expected, and indicate the donor’s name, address, telephone number and relationship to the borrower. Get it signed before the money moves. Underwriters read it against the transfer records, so the amount and the names should match what the bank shows.

Documenting the transfer

Fannie Mae lists five acceptable forms of documentation: a copy of the donor’s check and the borrower’s deposit slip; a copy of the donor’s withdrawal slip and the borrower’s deposit slip; evidence of the electronic transfer from the donor’s account to the borrower’s account or to the closing agent; a copy of the donor’s check to the closing agent; or a settlement statement showing receipt of the donor’s check. A related rule explains why cash is a problem. Lenders review bank statements typically covering the most recent two months, and a large deposit, defined as a single deposit that exceeds 50 percent of the total monthly qualifying income, has to be documented as coming from an acceptable source when the funds are needed for the purchase.

The IRS’s rule: who files what

The annual exclusion for 2026 is $19,000 per donee, the same as 2025. Two parents giving one child can each use it. Any gift tax generally falls on the donor. Under the Form 709 instructions, a giver who did not give more than $19,000 to any one donee, made no gifts to a spouse, and made only present-interest gifts doesn’t file. Above that, the giver files Form 709, and the excess counts against the basic exclusion amount, which the IRS lists as $15,000,000 for calendar year 2026. Unless lifetime gifts get anywhere near that figure, it means a form to file and nothing owed.

Gifts from Korea

When the money comes from a parent who isn’t a US person, meaning not a US citizen or resident, the reporting duty sits with the recipient. The IRS requires a US person to report gifts from a nonresident alien on Part IV of Form 3520 once the aggregate from that person, and anyone you know or have reason to know is related to them, exceeds $100,000 in the taxable year, separately identifying each gift over $5,000. The form is filed separately from your income tax return but by the same deadline, generally April 15, subject to any extension of time to file. It’s an information return, and there’s no tax attached to it, but the penalty for filing late is five percent of the gift for each month it goes unreported, up to 25 percent, unless you have reasonable cause. Ask your tax preparer about it the same week the wire lands.

The order that avoids trouble

Letter signed, then one documented transfer into the account the lender is already reviewing, then the wire confirmation saved next to the letter. Buying in Greater Boston this fall with family help? Tell me who’s giving and from where, and I’ll walk you through what the lender will ask for. Diana Kim, REALTOR®, eXp Realty.