Part of the FHA loans in Arizona guide, where every rule on this page is cited and dated.
A parent wants to help with the down payment. That is permitted, it is extremely common, and it almost never causes a problem when it is handled in the right order.
The problems are always the same three: the money moved before anyone documented it, it arrived as cash, or the donor refuses to show a bank statement.
What FHA permits
Why a lender cares where the money came from
Two reasons, and understanding them explains every document request that follows.
It must not be a loan. If the money has to be repaid, it is a debt, and a debt belongs in your debt-to-income ratio. An undisclosed repayment obligation is precisely what the sourcing requirement exists to find, and your ratio is where FHA approvals are usually won or lost. See How FHA Counts Your Debts.
It must not come from someone with an interest in the sale. The seller, the builder, the agent. Those parties may be able to contribute toward closing costs within the applicable limit, which is a different thing with a different cap:
The documentation, in the order it should happen
1. A signed gift letter, before the money moves. The donor states their name, address and phone, their relationship to you, the dollar amount, the property address, and explicitly that no repayment is expected or required. That last line is the entire purpose of the document; the rest is identification.
2. The donor's bank statement, showing the funds in their account before the transfer.
This is the step that stalls files. Some donors consider their bank balance private and are offended by the request. Have that conversation early and frame it honestly: the lender is not auditing them, it is documenting that the money was theirs to give. A donor who will not provide a statement has effectively declined to make a documentable gift, and you need to know that in week one rather than week three.
3. Evidence the money transferred. A wire confirmation, or a cancelled check with the deposit record, or matching withdrawal and deposit statements. The amounts have to match.
4. Evidence it arrived. Your bank statement showing the deposit, matching the letter and the withdrawal.
The underwriter is building a chain: the donor had it, the donor sent it, you received it, nobody owes anybody.
The three mistakes
Cash. A cash deposit cannot be sourced. There is no document showing where cash came from, which on most programs means it cannot be used at all. A relative who hands you an envelope has given you money you may not be able to use for this purchase. Wire or check, every time, no exceptions.
Commingling. The gift lands in an account with other activity, then money moves between accounts twice, and now an underwriter is reconstructing a trail across three statements and asking about every line. Deposit the gift into the account you will close from, in one transaction, and leave it alone.
Bad timing. A gift deposited a week before closing creates a document request at the worst possible moment. A gift deposited before you apply, already showing in your statements, is far simpler. Earlier is always better.
One related item: do not have the donor wire funds directly to escrow without telling your lender first. It can be acceptable and it has to be coordinated, because a wire arriving at escrow that the lender has not documented is a condition rather than a convenience.
Gift funds and your reserves
A point that catches people.
Some programs permit gift funds for the down payment but treat reserves, the liquid assets you must still hold after closing, differently. Which means a buyer whose entire cash position is a gift can clear the down payment requirement and fail the reserve test.
Ask explicitly: can gift funds satisfy my reserve requirement on this loan? Get the answer before you plan around it. This matters more if you end up manually underwritten, where reserves are frequently a compensating factor. See What a Manual Underwrite Is.
Gift of equity
Worth knowing about if you are buying from a family member. When a relative sells you a property for less than its appraised value, the difference can function as a gift of equity and serve as some or all of your down payment, with no cash changing hands.
It has its own documentation requirements, needs an appraisal establishing real value, and carries tax consequences for the seller that a tax advisor should address. It is genuinely useful in family transactions and it is not a do-it-yourself project. Note also that a sale between family members is a non-arm's length transaction, which brings additional scrutiny and in some cases additional requirements.
Large deposits generally
Gift funds are one instance of a broader rule: any large or unusual deposit in your statements will be questioned. Not as an accusation, as a requirement.
A bonus, a tax refund, proceeds from selling a car, a transfer from your own brokerage account are all fine and all need a document. Keep the receipts from the day you start thinking about buying. See Large Deposits and NSF Items.
The clean sequence
- Tell your lender the gift is coming, before it moves.
- Confirm the donor is an acceptable source for your program and occupancy.
- Get the gift letter signed before the transfer.
- Get the donor's bank statement. Have the awkward conversation early.
- Transfer by wire or check. Never cash.
- Deposit into the account you will close from, one transaction, then leave it.
- Confirm whether it can also count toward reserves.
- Keep every document.
Why bring this file to us
- We quote the handbook with the section and the date, not from memory. Every guideline on this site carries its citation and when it was last verified, and says so when it is getting old.
- We tell you the overlay, not just the rule. The published floor and what investors actually do are two different numbers, and only one of them decides your file.
- Broker model. When one investor's overlay is the obstacle, we move the file rather than tell you no.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
Call before you shop, not after you are in contract. Most of what goes wrong in an FHA file was decidable in week one.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. FHA is a mortgage insurance program administered by the Department of Housing and Urban Development; loans are made by approved lenders, not by HUD or FHA. Guideline requirements are set out in HUD Handbook 4000.1 and change over time, and individual investors frequently impose requirements stricter than the published minimums. Nothing here is a substitute for the current handbook or for an underwriting decision on your specific file. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify. This is not legal or tax advice.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
