Kentucky Mortgage Guide
Gift Funds for Kentucky Homebuyers: FHA, VA, USDA & Conventional Rules (2025)
Buying a home in Kentucky with little or no money down is more achievable than you might think. When structured correctly with proper documentation, gift funds can cover your entire down payment and closing costs—making homeownership accessible to families who don't have substantial savings. This guide walks you through exactly how gift funds work across FHA, VA, USDA, and Conventional loans, who can legally give you a gift, and how to avoid the documentation mistakes that slow files in underwriting.
Quick Reference: Gift Funds by Program
| Program | Down Payment | Borrower Contribution Required? | Primary Residence | Second Home |
|---|---|---|---|---|
| FHA | 3.5% (up to 96.5% LTV) | No | ✓ Allowed | ✗ Not Allowed |
| VA | 0% (up to 100% LTV) | No | ✓ Allowed | ✗ Not Allowed |
| USDA | 0% (up to 100% LTV) | No | ✓ Allowed (rural only) | ✗ Not Allowed |
| Conventional | 3–20% | No (primary) | ✓ Allowed | ✓ Allowed* |
*Conventional second homes: if LTV exceeds 80%, you'll typically need at least 5% of your own funds.
Who Can Give You a Mortgage Gift? Eligible vs. Ineligible Donors
Not every donation counts as a legitimate gift for mortgage purposes. Lenders distinguish between true gifts (freely given with no expectation of repayment) and other financial arrangements. Here's who can and cannot give you money for your home purchase in Kentucky:
✅ Eligible Gift Donors
- Parents, grandparents, siblings, and other blood relatives
- In-laws, aunts, uncles, cousins, and legal family
- Fiancé or domestic partner (Conventional only)
- Employer or labor union
- Nonprofit organizations and religious institutions
- Government programs like Kentucky Housing Corporation (KHC)
🚫 Ineligible Donors & Sources
- The home seller or builder
- Your real estate agent or any party to the transaction
- Your lender or loan officer
- Credit card cash advances or payday loans
- Unverifiable cash deposits ("under the table" money)
- Any funds expecting repayment (loans, not gifts)
Gift Fund Documentation: What You Must Provide
The most common reason gift-funded deals stall in underwriting is poor or missing documentation. Lenders must create a complete paper trail showing where the money came from, that it's truly a gift, and that it's now in your possession. Here's your checklist:
Required Documentation
-
Signed Gift Letter – A written letter from the donor that includes:
- Donor's full name, relationship to you, and contact information
- Amount of the gift
- Property address being purchased
- Clear statement: "This is a gift with no expectation of repayment"
- Signatures from both donor and borrower
-
Proof of Transfer – Documentation showing the money moved from donor to you:
- Bank wire confirmation with sender and recipient info
- Cashier's check stub or canceled check
- Donor's bank statement showing withdrawal
- Your bank statement showing deposit
-
Source Verification – For gifts over $10,000, lenders may request:
- Donor's recent bank statements (60 days)
- Verification the funds weren't borrowed from someone else
- Pay stubs or investment statements if needed
Pro Tip: Have your donor wire money directly to your escrow or title company when possible. This creates the clearest paper trail and avoids multiple transfers that raise underwriting questions.
How Gift Funds Work by Loan Program in Kentucky
FHA Loans (3.5% Down Payment)
FHA's 3.5% Minimum Required Investment can be 100% gift-funded. Combined with seller closing cost contributions (up to 6%) and lender credits, you can close with zero out of pocket. KHC's Down Payment Assistance Program also works seamlessly with FHA for eligible first-time buyers.
Key Point: No minimum borrower contribution required if gifts or DPA cover the 3.5% plus your closing costs.
VA Loans (0% Down Payment)
VA is the most flexible program for gift funds. There is no minimum borrower contribution—gifts can cover your entire down payment (if any), earnest money deposit, and closing costs. Your VA funding fee (1.25–3.3% depending on disability status and down payment) is typically financed into the loan.
Key Point: Watch the 4% seller concession cap. If seller covers 4% in closing costs, you'll need gifts or lender credits for any remaining costs.
USDA Loans (0% Down Payment)
USDA is 100% financing in eligible rural Kentucky counties. Gift funds cover closing costs and prepaids only—not down payment (since there isn't one). The USDA guarantee fee (1–2%) is financed. Maintain a clear trail: donor → your account → title company or escrow.
Key Point: USDA is strict about source verification. If your gift is large, expect the lender to request donor statements proving the funds are legitimate and not borrowed.
Conventional Loans (3–20% Down Payment)
Primary Residences: Gifts can fund 100% of your down payment and closing costs with no borrower contribution required, up to 97% LTV (Fannie Mae).
Second Homes: Gifts are allowed, but if your LTV exceeds 80%, you must contribute at least 5% of your own funds. For example, on a $300,000 second home with 80%+ LTV, you need $15,000 from your own savings; gifts can cover the remainder.
Key Point: Investment properties cannot use gift funds at all.
Real-World Zero-Down-Payment Scenarios
✓ Scenarios That Work
✗ Red Flags That Cause Delays
Pro Tips: How to Use Gift Funds Smoothly
- 1. Plan Early: Talk to your lender before making an offer. They'll tell you exactly what gift structure works for your program and down payment goal.
- 2. Wire or Cashier's Check: Have donors wire money directly to escrow, or provide a cashier's check. Avoid cash and personal checks when possible.
- 3. Get Gift Letters Early: Request signed gift letters at the same time you gather financial documents. Having them ready speeds underwriting.
- 4. Disclose All Gifts Upfront: Don't surprise your lender with gifts during underwriting. Full transparency prevents last-minute delays.
- 5. Verify Eligibility: On FHA, VA, and USDA, confirm donors meet relationship requirements. Your lender has a checklist—use it.
More Kentucky Mortgage Resources
Learn more about specific loan programs and down payment assistance:
- Kentucky FHA Loans: Eligibility, Rates & Mortgage Insurance
- Kentucky VA Loans: Certificate of Eligibility & Rates
- USDA Loan Eligibility Map & Kentucky Counties
- Kentucky Housing Corporation: Down Payment Assistance Programs
- First-Time Homebuyer Checklist for Kentucky
Ready to Use Gift Funds to Buy Your Kentucky Home?
I'll structure your FHA, VA, USDA, or Conventional loan to maximize your gift funds, create a clean paper trail, and get you to underwriting approval fast.
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Joel Lobb, NMLS #57916
EVO Mortgage (NMLS #1738461)
📞 502-905-3708 | ✉ kentuckyloan@gmail.com
Frequently Asked Questions About Gift Funds
Can I receive multiple gifts from different people?
Yes. You can receive gifts from multiple eligible donors. For example, your parents might give $5,000, grandparents $5,000, and an employer might provide $3,000. Each donor needs their own gift letter, but there's no limit on total gifts received.
Do gift funds count toward my debt-to-income ratio?
No. Gift funds do not increase your debt-to-income ratio because they're not a loan. Your lender looks at your income and existing debts (credit cards, auto loans, student loans, etc.) but ignores gift funds when calculating DTI. This can help you qualify for a larger loan amount.
What if my donor doesn't have a bank account?
This is uncommon but possible. If your donor uses cash, they'll need to deposit it into a bank account at least 30–60 days before closing so you can document the source. A large cash deposit right before closing raises red flags and will likely delay your file. Plan ahead.
Can I use a gift for earnest money and down payment?
Absolutely. Gifts can cover earnest money (the deposit you make when making an offer), down payment, and closing costs. Just make sure your lender knows the gift is funding multiple parts of the transaction and documents it clearly.
Will my lender contact my donor?
In most cases, no. Your lender will verify the gift letter and request donor bank statements as needed, but they typically won't call your donor directly. However, they may contact the donor if there are red flags (missing documentation, unclear relationship, etc.). Stay transparent to avoid issues.
Can I use KHC Down Payment Assistance along with a family gift?
Yes. Many Kentucky first-time buyers combine family gifts with KHC down payment assistance programs. For example, a $3,000 family gift might cover your 3.5% FHA down payment, while KHC assists with closing costs. This is one of the most powerful ways to close with minimal out-of-pocket funds.
What if I receive a gift but my loan is denied?
If your loan application is denied, the gift funds remain yours—there's no obligation to repay them (that's what makes it a gift). However, discuss this risk with your donor beforehand. Some donors may want to wait until final approval before providing the money.
Is there a maximum gift I can receive?
There is no maximum limit on the dollar amount of gifts you can receive for mortgage purposes. However, your total down payment cannot exceed program limits. For example, on an FHA loan, your total gift funds cannot exceed the value needed for 100% of your 3.5% down payment and closing costs.
Important Disclosures & Compliance
Equal Housing Lender. All loans are subject to credit, income, and collateral approval. Loan programs, terms, rates, guidelines (FHA, VA, USDA, Conventional, KHC), and down payment assistance are subject to change without notice. Financing availability may vary by property type, occupancy status, credit score, debt-to-income ratio, and location. This information is not an offer to lend and does not constitute loan approval.
Licensing & NMLS: Licensed to originate mortgage loans in the state of Kentucky only. Joel Lobb, NMLS Personal ID #57916. EVO Mortgage, NMLS Company ID #1738461. Verify license status at www.nmlsconsumeraccess.org.
Not Government Endorsed: This website and the information provided are not endorsed, sponsored, or affiliated with HUD, the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), the U.S. Department of Agriculture (USDA), the Kentucky Housing Corporation (KHC), Fannie Mae, or any government agency. This is an independent educational and informational resource created to assist Kentucky homebuyers.
Regulatory Authority: The Kentucky Department of Financial Institutions (DFI) oversees mortgage lending in Kentucky. For complaints or inquiries, visit dfi.ky.gov.
External Resources for Gift Funds & Mortgage Guidelines
- HUD 4000.1 FHA Handbook – Official FHA loan rules and gift fund policies
- VA Lender's Handbook – VA loan eligibility, gift funds, and benefits
- USDA Handbook HB-1-3555 – USDA Rural Housing loan guidelines
- Fannie Mae Selling Guide – Conventional loan rules and gift fund requirements
- Kentucky Housing Corporation (KHC) – Down payment assistance programs for Kentucky buyers
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