Gift Funds for Kentucky Mortgages | FHA, VA, USDA & Conventional Explained

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Joel Lobb 

 Email - kentuckyloan@gmail.com 

 Call/Text - 502-905-3708

 www.mylouisvillekentuckymortgage.com
 911 Barret Ave., Louisville, KY 40204

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Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

Kentucky Mortgage Loan Expert For Kentucky FHA, VA, USDA, Fannie Mae and KHC Down payment Assistance Loans

Can I get a Gift for A Down payment on a Kentucky Mortgage Loan?

FHA Gift Funds Kentucky 2025: Complete Guide to Gifts of Equity & Down Payment Assistance

Last Updated: October 2025 — FHA loans remain one of the most accessible pathways to homeownership for Kentucky first-time buyers. If you've been told you can't afford a home because of down payment requirements, think again. Understanding how FHA gift funds and gifts of equity work could open the door to your dream home with as little as 3.5% down.

Kentucky first-time homebuyers with FHA gift funds make homeownership more affordable

Many Kentucky homebuyers don't realize they can receive financial help from family, friends, or even employers to cover their down payment and closing costs. This guide explains exactly how FHA gift funds work, who can provide them, and what documentation you'll need to get approved.

Who Can Give FHA Gift Funds in Kentucky?

The HUD 4000.1 Handbook outlines several acceptable sources for FHA gift funds. The key requirement: the funds must be a gift, not a loan.

FHA gift funds can come from family members, employers, charities, and government programs

Eligible donors include:

• Family members — parents, grandparents, siblings, children, spouse, or in-laws
• Employers or labor unions — who offer down payment assistance programs
• Close friends — with documented proof of relationship
• Charitable organizations — non-profits offering homebuyer assistance
• Government or public agencies — like KHC (Kentucky Housing Corporation) programs

💡 Important: Sellers, builders, and real estate agents cannot provide gift funds. FHA lenders verify this to prevent fraud and ensure true down payment assistance.

FHA Definition of "Family Member"

For FHA purposes, family includes parents, grandparents, children (including adopted or foster children), siblings, spouses, domestic partners, uncles, aunts, and all in-laws (mother-, father-, sister-, or brother-in-law). This broad definition means most relatives can provide gift funds.

FHA Gift Fund Rules for Kentucky Borrowers: What You Need to Know

Requirement	FHA Rule
Property Type	Primary residence (1–4 family units)
Minimum Down Payment	No minimum required (can be 100% gift)
Maximum LTV (Loan-to-Value)	Up to 96.5% with 3.5% down
Gift Fund Use	Down payment, closing costs, pre-paid expenses
Reserves	Gift funds cannot count toward reserve requirements
Cash on Hand	Not acceptable (funds must be traceable)
Repayment	Strictly prohibited — must be a gift, not a loan

Documentation Required for FHA Gift Funds

The most critical part of using gift funds is documentation. Lenders need proof that:

• The donor has the funds available
• The funds came from a legitimate source
• No repayment is expected
• The money actually transferred to you

Required Documents Checklist

• Signed gift letter — states the amount, relationship, and that no repayment is expected
• Donor's recent bank statements — typically last 2 months showing the gift fund withdrawal
• Your bank statements — showing the deposit of gift funds
• Wire receipt or cashier's check proof — if funds go directly to closing
• Written explanation — if any gaps appear between withdrawal and deposit

Pro Tip: Have the donor wire funds directly to your account or the title company, or use a cashier's check. This creates a clear paper trail. Lenders want to see documented proof that doesn't raise red flags.

Understanding FHA Gifts of Equity in Kentucky

A gift of equity is a unique FHA program that helps when a family member sells you their home. Instead of paying full market value, you purchase the home at a lower price, and the difference becomes your down payment credit.

Real-World Example: Gift of Equity in Kentucky

Scenario: Your parent owns a home appraised at $200,000. They agree to sell it to you for $180,000. The $20,000 difference is the "gift of equity." You can use this $20,000 as your down payment on an FHA loan. Your loan would be for $180,000 (or less with additional down payment), and the $20,000 equity gift covers the difference.

FHA Gift of Equity Requirements

• Only family members can provide a gift of equity
• Maximum LTV = 85% (loan amount ÷ appraised value) unless:
  • The seller's home is their primary residence, OR
  • You rented the property for at least six months before the sales contract date
• Must be documented in the purchase agreement and appraisal

Documentation for Gift of Equity

• Signed gift letter — from the seller acknowledging the equity gift
• Current appraisal — showing the true market value
• Sales contract — identifying the purchase price and equity gift amount
• Proof of relationship — birth certificate, marriage license, or family documents

FHA Gift Letter Template for Kentucky Borrowers

Your FHA gift letter must include specific language. Here's a template you can use:

Sample FHA Gift Letter:

"I, [Donor Full Name], am giving [Borrower Full Name] a gift of $[Amount] for use toward the down payment on the property located at [Property Address]. This gift represents no obligation for repayment. I expect nothing in return for this gift. [Donor Signature] [Date]"

Make sure your lender approves the exact wording before having it signed.

Does Kentucky's KHC Program Accept Gift Funds?

Yes. Kentucky Housing Corporation (KHC) and other down payment assistance programs often work alongside FHA gift funds. Many Kentucky first-time homebuyers combine KHC grants with family gifts to minimize out-of-pocket costs.

Learn more about KHC down payment assistance programs →

Common Questions About FHA Gift Funds in Kentucky

Can I use multiple gift sources?

Yes. You can receive gifts from multiple family members or organizations. Each gift requires its own gift letter and documentation.

Is there a limit to how much I can receive as a gift?

No. FHA has no maximum on gift amounts, but the full down payment and closing costs can be covered by gifts if properly documented.

Can a gift fund be used for closing costs?

Absolutely. FHA gift funds can cover down payment, closing costs, appraisal fees, inspection costs, and other homebuying expenses.

What if the donor and I live in different states?

That's fine. The donor's location doesn't matter — only that they have a legitimate relationship to you and the funds are properly documented.

Why Work With a Kentucky FHA Loan Expert?

Understanding FHA gift fund rules is complex, and mistakes can delay your approval or derail your loan entirely. Working with a knowledgeable Kentucky mortgage specialist ensures:

• Proper documentation — all gifts are verified and approved upfront
• No delays — we catch issues before they become problems
• Maximum benefits — we identify all programs you qualify for (FHA, KHC, VA, USDA)
• Peace of mind — you have expert guidance every step of the way

Ready to Buy Your Kentucky Home With FHA Gift Funds?

Let me help you navigate FHA gift fund requirements and get approved quickly. Whether you're receiving a family gift, a gift of equity, or KHC assistance, I'll ensure everything is documented correctly for a smooth, fast approval.

Joel Lobb — Kentucky FHA Mortgage Specialist

NMLS #57916 | EVO Mortgage NMLS #1738461
📞 (502) 905-3708 | 📧 Joel Lobb Expert on Gift Funds for Kentucky Mortgage Laons

Services: FHA • VA • USDA • KHC • Conventional Loans
Serving: All of Kentucky | Same-Day Pre-Approvals Available

Related Kentucky Homebuying Resources

• Complete FHA Loan Requirements & Guidelines for Kentucky (2025)
• Kentucky Housing Corporation (KHC) Down Payment Assistance Programs
• FHA $100 Down HUD Homes Program in Kentucky
• VA Loans in Kentucky: Benefits & Requirements for Veterans
• USDA Rural Housing Loans in Kentucky

Equal Housing Lender

Joel Lobb (NMLS #57916) | EVO Mortgage (NMLS #1738461)
Mortgage Loan Officer — Kentucky FHA, VA, USDA & KHC Specialist

Disclaimer: This information is accurate as of October 2025 and subject to change without notice. All loans are subject to credit and property approval. This article is educational and does not constitute a commitment to lend. FHA loans are insured by HUD. Contact a licensed loan officer for personalized advice.

This is why it's possible to get a little help in the form of a down payment gift from a family member or relative, close friend, or even a charitable organization. And it’s actually becoming more popular, especially among millennials. In the National Association of REALTORS® 2020 Generational Trends Report, 13 percent of home buyers (and 27 percent for ages 22 to 29) indicated their source of down payment to be a gift from their relative or friend. 

So if you’re lucky enough to find down payment fund as one of your gifts under the Christmas tree this year (or maybe you’re the one who wants to give it), it may not be as simple as opening your cash gift (or handing someone a wad of cash) and going straight to the lender to use it to buy a home. 

Down payment gift funds, whether you’re giving or receiving it, are closely regulated by lenders and must meet certain requirements. Here are certain rules that the gift giver and recipient should know to avoid trouble down the road.

While we may automatically consider a family member, like parents or siblings, when thinking about who can give a mortgage down payment gift, there are other entities who could also be eligible gift sources. But because cash can come with strings attached, and lenders want to make sure that the gift money is nothing but a gift (which will be discussed later on), there are restrictions on who can give money (or who you can give money to) to help purchase a home.

For conventional loans

If you are getting a loan through Fannie Mae or Freddie Mac, gifts can only be from a family member or relative. This may be your spouse, child, siblings, parents, grandparents, or anyone related by blood, marriage, adoption, or legal guardianship. Soon-to-be family members such as your domestic partner, fiancé, or even future in-laws are also eligible to give funds for a down payment.

For FHA loans

The Federal Housing Administration (FHA) has its own set of rules when it comes to giving or receiving down payment gifts, although they offer a broader eligibility range. If you are getting an FHA loan, you can receive down payment funds from family members, friends who have a clearly defined and documented interest in your life, employers, labor unions, government agencies, and even charitable organizations. 

For USDA and VA home loans

VA loans (backed by the U.S. Department of Veterans Affairs) and USDA mortgages (given by the U.S. Department of Agriculture)may have fewer restrictions, but the down payment gift funds cannot come from anyone who would benefit from the proceeds of the purchase, such as the seller, developer, builder, your real estate agent, and some other entity.

There are no limits on the amount of money someone can give you for a down payment or to cover closing costs. However, rules still apply depending on the type of loan and property you're purchasing. Some types of loans may need you to contribute a certain amount of the down. The key is to check with your lender for the latest regulations on how much you can really use.

Likewise, there can be tax implications on the person giving the gift funds. They may be liable if the amount exceeds the gift tax exclusion limit. As of 2020, for instance, any individual can give funds up to $15,000 without a tax penalty. On the other hand, parents who are married and are filing jointly can give up to $30,000 per child for a mortgage down payment (or any other purpose), without incurring the gift tax. For a down payment gift that exceeds the said amounts, the donor must file a gift tax return to disclose the gift. 

• You need to confirm the relationship between you and the giver and provide the right paperwork.

If you're fortunate enough to have a family member or any eligible entity who can give you funds towards your home’s down payment, you’ll need to confirm your relationship with the gift-giver and provide your mortgage underwriter more information about where the funds came from.

For lenders to confirm that the new money isn’t a loan, you’ll need these things:

1. A down payment gift letter - If your lender has a template letter for this purpose, you will need to send it to the funds’ donor. If there isn’t a template, you might want to ask what information should be included so you can draft your own.

The letter typically includes details about the gift-giver, such as the name, address, contact phone, relationship to the borrower, and address of the property to be purchased. The date when the gift was transferred and the amount of funds given to the borrower must also be indicated. The donor should also write a sentence explaining that the fund is a gift and that there isn’t any expectation of repayment. The letter must be signed by both the gift-giver and the borrower.

2. The gift-giver’s bank statements - This is to show they have the funds to give the buyer as much money as promised.

3. A bank slip from the buyer’s account - This is to indicate when the money was transferred, to verify that the cash is from a legitimate source and that the borrower has an appropriate relationship with the donor, and to confirm the information provided in the letter.

• Remember: you can't pay back the gift.

Down payment gift funds need to be just like that—a gift and not a loan that is expected to be paid. You need to make it clear with your mortgage lender that the money you received was entirely gifted and not something that you need to pay back eventually, because by then it will be considered mortgage or loan fraud. Besides, it can also put your loan qualification at risk since your debt-to-income ratio will be factored when you get a mortgage. 

• Try to make it a “seasoned” gift money.

It might make more sense to try and make your gift money “seasoned”, especially if you know that someone is going to help you buy a home (often in the case of parents or other relatives). Lenders refer to it as seasoned money when it has been sitting in your bank account for some time, at least for two months. When the gifted money is given in advance, you often don't have to worry about writing gift letter documentation.

Bottom Line

Down payment gift funds make it easier for first-time home buyers to afford a home. If you anticipate accepting help, remember to consider the rules above so you can accept such a gift in a proper manner. Be upfront with your mortgage lender if you plan on using gift funds for the down payment. Don't forget to also talk to the individual or entities who are planning to give you money about the tax implications and other considerations.

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FHA GIFT OF EQUITY FOR KENTUCKY MORTGAGE LOANS

  Gift of Equity For a Kentucky Home Mortgage Loan for FHA 

The gift of equity guidance doesn't address paying off debt so it will be up to the DE underwriter to make the decision, but keep in mind that this may be considered an inducement to purchase since there is no exception listed for family members.

What seller contributions are considered inducements to purchase?

Inducements to Purchase are treated the same way for both TOTAL and Manual underwriting.  Inducements to Purchase refer to certain expenses paid by the seller and/or another Interested Party on behalf of the Borrower and result in a dollar-for-dollar reduction to the Adjusted Value of the property before applying the appropriate Loan-to-Value (LTV) percentage.  These inducements include, but are not limited to:
•     contributions exceeding 6 percent of the Purchase Price;
•     contributions exceeding the origination fees, other closing costs, prepaid items and discount points;
•     decorating allowances;
•     repair allowances;
•     excess rent credit;
•     moving costs;
•     paying off consumer debt;
•     Personal Property;
•     sales commission on the Borrower’s present residence; and
•     below-market rent, except for Borrowers who meet the Identity-of-Interest exception for Family Members.  

(1)    Personal Property
Replacement of existing Personal Property items listed below are not considered an inducement to purchase, provided the replacement is made prior to settlement and no cash allowance is given to the Borrower. The inclusion of the items below in the sales agreement is also not considered an inducement to purchase if inclusion of the item is customary for the area:
•     range
•     refrigerator
•     dishwasher
•     washer
•     dryer
•     carpeting
•     window treatment
•     other items determined appropriate by the Homeownership Center (HOC) 

(2)     Sales Commission 
An inducement to purchase exists when the seller and/or Interested Party agrees to pay any portion of the Borrower’s sales commission on the sale of the Borrower’s present residence.  An inducement to purchase also exists when a Borrower is not paying a real estate commission on the sale of their present residence, and the same real estate broker or agent is involved in both transactions, and the seller is paying a real estate commission on the property being purchased by the Borrower that exceeds what is typical for the area. 

(3)     Rent Below Fair Market 
Rent may be an inducement to purchase when the sales agreement reveals that the Borrower has been living in the property rent-free or has an agreement to occupy the property at a rental amount considerably below fair market rent.  Rent below fair market is not considered an inducement to purchase when a builder fails to deliver a property at an agreed-upon time, and permits the Borrower to occupy an existing or other unit for less than market rent until construction is complete.  

Give us a try or let us compare your options on your next mortgage transaction. Call/text at 502-905-3708. Free Mortgage Pre-Qualifications same day on most applications.

Email me at kentuckyloan@gmail.com with your questions

I specialize in Kentucky FHA, VA ,USDA, KHC, Conventional and Jumbo mortgage loans. I am based out of Louisville Kentucky. For the first time buyer with little money down, we offer Kentucky Housing or KHC loans with down payment assistance.

This website is not an government agency, and does
not officially represent the HUD, VA, USDA or FHA or any other government agency.

NMLS# 57916 http://www.nmlsconsumeraccess.org/

Joel Lobb Senior Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223

phone: (502) 905-3708
Fax: (502) 327-9119
kentuckyloan@gmail.com

Company ID #1364 | MB73346E
EQUAL HOUSING LENDER
http://www.mylouisvillekentuckymortgage.com/

Gift Funds & Gift of Equity for Kentucky FHA Mortgage Loan Approval Requirements

 Kentucky FHA Gift of Equity and Gift Funds for Down Payment Requirements

Gifts may be provided by:

•  Borrower's family member*;
•  the borrower's employer or labor union;
•  a close friend with a clearly defined and documented interest in the borrower;
•  a charitable organization;
•  a governmental agency or public entity that has a program providing homeownership assistance to:
•      low or moderate income families; or
•      first-time homebuyers.

*Family member defined as:
•  child, foster child, parent, or grandparent; spouse or domestic partner;
•  legally adopted son or daughter, including a child who is placed with the borrower by an
authorized agency for legal adoption;
•  brother, stepbrother, sister, stepsister;
•  uncle or aunt
•  son-in-law, daughter-in­ law, father-in-law, mother­ in-law, brother-in-law, or sister-in-law of
the borrower.

Guidelines -  Personal Gift Funds

•      Primary residence 1-4 unit only
•     Funds may not be used to fulfill mandatory reserve requirements for manually underwritten
files.
•      No borrower funds are required for down payment.
•      Cash on hand is not an acceptable source of donor funds.

Documentation  - Personal Gift Funds

•      Gift letter - See Requirements in "Notable Agency Differences" Above
•      If the gift funds have been verified in the borrower's account, obtain the donor's bank
statement showing the withdrawal and evidence of the deposit into the borrower's account.
•      If the gift funds are not verified in the borrower's account, obtain the certified check or
money order or cashier's check or wire transfer or other official check, and a bank statement
showing the withdrawal from the donor's account.
•      If the gift funds are paid directly to the settlement agent, verify that the settlement
agent received the funds from the donor for the amount of the gift, and that the funds were from an
acceptable source.
•      If the gift funds are being borrowed by the donor and documentation  from the bank or other
savings account is not available, have the donor provide written evidence that the funds were
borrowed from an acceptable source, not from a party to the transaction.
Regardless  of when gift funds are made available to a borrower, the lender must be able to make a
reasonable determination that the gift funds were not provided by an unacceptable source.  This
usually requires a copy of the donor's bank statement.

Guidelines -  Gift of Equity

•     Family member is ONLY eligible donor for gifts of equity
•      Limited to 85% LTV unless:
o      residence is currently selling-family member's primary residence or
purchasing family member has been renting residence 6 months prior to sales contract date.

Documentation -  Gift of Equity

Gift Letter -  See Requirements in "Notable Agency Differences" Above

Kentucky Fannie Mae Loans versus Kentucky FHA Loans

Kentucky Fannie Mae Loans versus Kentucky FHA Loans

Non Occupant Co-Borrower for Fannie Mae and FHA Loans.  The differences below: Kentucky Fannie Mae Loans Allowed on all Purchases up to 95% LTV Allowed on all Refinances including Cash out Does not have to be a Family Member Kentucky FHA Loans Limited to 75% LTV.  LTV can be increased to max 96.5% LTV provided: Non occupying borrower is not the seller in the transaction Property is not a 2-4 unit property Has to be a family member Not allowed on Cash out Refinances Non Occupant Co Borrowers must either be United State Citizens or have a Principal Residence in the United States.

Non arms Length / Identity of Interest for FHA and Fannie Mae Loans In KY Fannie Mae Loans(non arms length) Underwriter must confirm transaction is not a bail out Gift of Equity is allowed No additional restrictions apply FHA loans (Identity of Interest) Gift of Equity is allowed LTV limited to 85% unless Purchase is the principle residence of another Family Member Borrower has been a tenant in property for 6 months predating the sales contract.  A lease or other written evidence is needed to verify occupancy Borrower is an employee of the Builder of the property If a Family Member is providing secondary financing for the transaction, additional guidelines apply.  See HUD 4000.1 II.A.4.(3) for additional guidelines. Joel Lobb Mortgage Loan Officer Individual NMLS ID #57916 American Mortgage Solutions, Inc. 10602 Timberwood Circle  Louisville, KY 40223 Company NMLS ID #1364 click here for directions to our office Text/call:      502-905-3708 fax:            502-327-9119 email:          kentuckyloan@gmail.com https://www.mylouisvillekentuckymortgage.com/