Gift Funds for a Mortgage in Oregon and Non-Occupant Co-Borrowers

The short answer: Gift funds for a mortgage in Oregon are allowed on conventional and FHA loans when they come from an acceptable donor and are documented with a signed gift letter and a paper trail. On a one-unit home you will live in, a conventional loan lets a gift cover the whole down payment. A non-occupant co-borrower is different: that person signs the loan and adds their income, which helps when the problem is qualifying rather than cash.

How Gift Funds for a Mortgage in Oregon Work

Family help is one of the most common things I see in a Clackamas County loan file.

A parent in West Linn helps a daughter buy her first place in Oregon City. A grandmother covers closing costs for a grandson in Milwaukie. An older couple sells their Gladstone house to their son and knocks some equity off the price. All three are gifts, and all three are allowed.

The rules exist because a lender has to know the money is really yours to spend. A gift that has to be paid back is a loan. A loan is a debt, and a debt changes how much house you qualify for. So the underwriter wants proof on three points:

• the person giving the money is an acceptable donor,
• the donor does not expect to be repaid, and
• the money actually moved from the donor's account to you or to closing.

The details depend on the loan type. Conventional loans follow the Fannie Mae Selling Guide. FHA loans follow HUD Handbook 4000.1. VA and USDA loans have their own gift rules, and I check those on each file rather than summarizing them here. If you are still sorting out the loan types, my page on first-time home buyer loans in Clackamas County compares them side by side.

Who Can Give Gift Funds on a Conventional or FHA Loan

The donor list is the first place conventional and FHA loans split.

On a conventional loan, Fannie Mae Selling Guide B3-4.3-04 allows gifts from a relative. That means a spouse, child or other dependent, or anyone related to you by blood, marriage, adoption or legal guardianship. It also allows some non-relatives with a family-like tie: a domestic partner or that partner's relative, a fiancé or fiancée, a former relative, or someone with a long-standing familial-like or mentorship relationship with you.

On an FHA loan, HUD Handbook 4000.1 lists a different set of sources. A gift can come from a Family Member, your employer or labor union, a close friend with a clearly defined and documented interest in you, a charitable organization, or a government agency with a homeownership program for low- or moderate-income families or first-time buyers.

Two rules catch people on FHA. First, the donor's cash on hand is not an acceptable source. A parent who keeps savings in a coffee can needs to deposit it and let it show up in a bank account before gifting it. Second, your 3.5 percent minimum investment cannot come from the seller or from anyone who benefits from the sale. A gift from a parent or other acceptable donor can cover it.

How Much of Your Down Payment Gift Funds Can Cover

This is the question I get most, and the answer is better than most buyers expect.

On a conventional loan, Fannie Mae sets a minimum borrower contribution. That is the part of the money that has to come from your own funds. Here is how it works under B3-4.3-04, updated February 4, 2026:

Read the middle row again. If you are buying a single-family home or a condo to live in, a gift can cover your full down payment, your closing costs and your reserves. That is true even at 3 or 5 percent down.

There is one exception on the 5 percent rule. If the donor has lived with you for the past 12 months and will live with you in the new home, Fannie Mae treats their gift as your own funds. You need a certification from the donor and proof of the shared address, such as a driver's license, a bill or a bank statement.

Buying a duplex or triplex to live in? The 5 percent rule applies above 80 percent LTV. My guide to 2-4 unit financing in Clackamas County covers the rest of that file.

For a sense of the dollar figures behind each down payment level, see how much down payment you actually need in Clackamas County.

The Gift Letter for Gift Funds on an Oregon Mortgage

Every gift needs a letter. The letter is short, but the details are not optional.

Under Fannie Mae B3-4.3-04, the donor signs a letter that includes:

• the actual dollar amount of the gift, or the maximum amount,
• a statement that no repayment is expected, and
• the donor's name, address, phone number and relationship to you.

If the gift comes from a trust or an estate of an acceptable donor, the letter also names the trust or the estate account.

FHA asks for the same core facts with one difference. Under HUD 4000.1, the gift letter is signed and dated by both the donor and the borrower. It states the donor's name, address and phone number, the relationship, the dollar amount, and that no repayment is required.

Get the amount right. If the gift that arrives differs from the amount used to underwrite the loan, the lender may have to resubmit your file. I usually send the donor a template and check it before they sign.

Documenting the Transfer of Gift Funds

The letter says the money is a gift. The paper trail shows it moved.

On a conventional loan, the lender has to verify that the donor has the money or that it has already reached you. Fannie Mae accepts any of these:

• a copy of the donor's check and your deposit slip,
• the donor's withdrawal slip and your deposit slip,
• evidence of an electronic transfer from the donor's account to yours or to the closing agent,
• a copy of the donor's check to the closing agent, or
• a settlement statement showing the donor's check was received.

FHA works the same way in practice. Before closing, the lender wants the donor's bank statement or canceled check plus proof of your deposit, or proof of the electronic transfer. At closing, the money goes to the settlement agent by electronic transfer, certified check, cashier's check or another official bank check.

My advice is simple. Have the donor wire or transfer the gift straight from their account. Do not have them withdraw cash and hand it to you. Cash breaks the paper trail, and on FHA, cash on hand does not count at all.

Gift of Equity When You Buy a Home From Family

Sometimes the gift is not cash. It is part of the house.

A gift of equity happens when a family member sells you their home for less than it is worth. The difference is credited to you at closing. Fannie Mae Selling Guide B3-4.3-05 allows it on principal residence and second home purchases. The gift of equity can fund all or part of the down payment and closing costs, including prepaid items. It cannot be used for reserves.

The same donor and minimum contribution rules from the gift topic apply. When the donor is an acceptable donor, Fannie Mae does not treat them as an interested party. That means the gift of equity is not held to the usual limits on seller contributions. The file needs a signed gift letter and a settlement statement that lists the gift of equity.

FHA is narrower. Under HUD 4000.1, only Family Members may give equity as a gift on a home being sold to another Family Member. FHA also normally caps a sale between family members at 85 percent loan-to-value. That cap does not apply when you buy another Family Member's principal residence. It also does not apply when you have rented the home from that family member for at least six months before the sales contract.

Here is a common Clackamas County version. Parents in Oregon City are downsizing and want their son to have the house. They sell it to him below the appraised value. The difference becomes his down payment, and he may not need to bring much cash at all. My Oregon City home loans page covers the rest of buying there.

Non-Occupant Co-Borrowers: When a Parent Signs the Loan

A gift solves a cash problem. A co-borrower solves an income problem.

A non-occupant co-borrower is someone who signs the note with you but will not live in the home. Parents are the usual example. Their income, assets, debts and credit go into the file alongside yours. That can lower your debt-to-income ratio enough to qualify.

On a conventional loan, Fannie Mae Selling Guide B2-2-04 allows non-occupant borrowers on purchases, limited cash-out refinances and cash-out refinances. They must be jointly liable on the note. They cannot have an interest in the sale, such as being the seller, the builder or the real estate agent. The limits depend on how the loan is underwritten:

• Desktop Underwriter (DU): DU looks at every borrower's income, assets, debts and credit. With a co-borrower who will not live in the home, the maximum LTV is 95 percent.
• Manual underwriting: the maximum LTV is 90 percent. If the co-borrower's income is used, the occupying borrower must usually put in the first 5 percent from their own funds. That does not apply at 80 percent LTV or below, or on a one-unit home where gift rules cover the contribution. Your own income alone must also stay at or under a 43 percent DTI.

On FHA, HUD 4000.1 sets a 75 percent maximum LTV for a non-occupying borrower transaction. It rises to 96.5 percent when the borrowers are Family Members. That higher limit is not available in two cases: when a family member sells to a family member who will be the non-occupying co-borrower, or when the home has two to four units. A non-occupying co-borrower on FHA must be a U.S. citizen or have a principal residence in the U.S. All FHA borrowers, occupying or not, take title and sign the security instrument.

A co-borrower is a real commitment. They are liable for the full loan, not a share of it. That debt is theirs too. Make sure they understand that before they sign.

To see how a co-borrower changes your numbers, start with my guide to debt-to-income ratios in Clackamas County.

Gift Funds or a Co-Borrower: Which Helps More?

The answer depends on what is actually stopping you.

• You qualify on income but are short on cash. A gift is usually the cleaner answer. Your family helps once, and they are not on the loan.
• You have the cash but your ratios are too high. A gift will not fix that. A co-borrower's income can.
• You are short on both. Some families do both. A parent gives part of the down payment and also signs as a co-borrower. The rules above apply to each piece.
• You are buying from family. A gift of equity may do the work of a cash gift without anyone writing a check.

In higher-priced parts of the county, the gap is often large. Lake Oswego and West Linn buyers regularly cross the 2026 conforming limit of $832,750 for a one-unit Clackamas County home. FHA's limit here is $701,500. Above those lines the rules change, so a gift plan built for a conforming loan may not carry over. My Lake Oswego home loans page covers that market.

A Worked Example: Gift Funds for a Mortgage in Oregon City

The figures below are illustrative, not a quote.

Say you are buying a $550,000 single-family home in Oregon City with 5 percent down. That is $27,500. You have $8,000 saved. Your parents offer $25,000.

On a conventional loan, this works. It is a one-unit home you will live in, so Fannie Mae requires no minimum contribution from your own funds. The gift can cover the full down payment. Your $8,000 can go to closing costs and reserves.

Your parents sign a gift letter for $25,000 stating no repayment is expected. They wire the money from their account to yours, or straight to the title company. I collect the letter and the transfer record, and the gift is done.

Now change one fact. Your income alone puts your DTI over the line. The gift does not help with that. Your parents could instead join the loan as non-occupant co-borrowers. With DU, a conventional loan can go to 95 percent LTV with them on it. That is the same 5 percent down.

Tax Questions About Gift Funds

I am not a tax advisor, but donors always ask, so here is where to start.

The IRS sets an annual gift tax exclusion. For 2026 it is $19,000 per recipient, or $38,000 when a married couple gives together. A gift above that does not automatically mean tax is owed. It may mean the donor has to file a gift tax return. The donor should ask their own tax professional before writing a large check.

The mortgage side does not change based on the tax side. The underwriter cares that the gift is documented and not a loan.

How to Use Gift Funds for a Mortgage in Oregon, Step by Step

1. Talk to me before any money moves. Why it matters: the loan type decides who can give, and the transfer method decides whether the gift can be documented.
2. Confirm your donor is acceptable for your loan. Why it matters: a friend may qualify on FHA and not on conventional, or the other way around.
3. Sign the gift letter with the correct amount. Why it matters: an amount that does not match can force a resubmission late in the process.
4. Move the money by transfer or official check. Why it matters: cash breaks the paper trail. On FHA, cash on hand is not an acceptable source.
5. Keep every statement and receipt. Why it matters: the underwriter needs to see the money leave the donor and arrive with you or the closing agent.
6. Decide whether you also need a co-borrower. Why it matters: a gift fixes cash, not income. Get pre-approved in Clackamas County with the right plan before you shop.

I am a solo broker and I answer my own phone. The person who reviews your gift letter is the person who closes your loan.

Frequently Asked Questions About Gift Funds for a Mortgage in Oregon

Can I use gift funds for a mortgage in Oregon?

Yes. Conventional and FHA loans both allow gift funds from an acceptable donor, documented with a signed gift letter and a record of the transfer. On a conventional loan, Fannie Mae Selling Guide B3-4.3-04 lets a gift fund all or part of the down payment, closing costs or reserves on a principal residence or second home. Gifts are not allowed on an investment property. VA and USDA loans have their own gift rules. Approval is subject to underwriting and credit approval.

Can a gift cover my entire down payment?

Often, yes. On a conventional loan for a one-unit home you will live in, Fannie Mae requires no minimum contribution from your own funds, even above 80 percent loan-to-value, so the whole down payment can be a gift. The same is true at 80 percent LTV or less on a one- to four-unit primary home or a second home. Above 80 percent on a two- to four-unit primary home or a second home, you must put in 5 percent from your own funds first. On FHA, a gift from an acceptable donor can cover the 3.5 percent minimum investment, but that money cannot come from the seller or anyone who benefits from the sale.

Who can give me gift funds for a home purchase?

On a conventional loan, Fannie Mae allows relatives by blood, marriage, adoption or legal guardianship, plus a domestic partner, a fiance or fiancee, a former relative, or someone with a long-standing familial-like or mentorship relationship. On an FHA loan, HUD Handbook 4000.1 allows a Family Member, your employer or labor union, a close friend with a clearly defined and documented interest in you, a charitable organization, or a qualifying government homeownership program. The builder, developer, real estate agent and other interested parties cannot be donors on a conventional loan.

What does a gift letter need to say?

On a conventional loan, the donor signs a letter stating the actual or maximum dollar amount of the gift, that no repayment is expected, and the donor's name, address, phone number and relationship to you. On an FHA loan, the letter is signed and dated by both the donor and the borrower and includes the donor's name, address and phone number, the relationship, the dollar amount, and a statement that no repayment is required. The lender also needs proof the money moved, such as a bank transfer record or an official check.

What is a gift of equity?

A gift of equity is when a family member sells you their home below its value and the difference is credited to you at closing. Fannie Mae Selling Guide B3-4.3-05 allows it on principal residence and second home purchases for the down payment and closing costs, but not for reserves, and the file needs a gift letter and a settlement statement listing the gift. On FHA, only Family Members may give equity on a home sold to another Family Member.

Can my parents co-sign my mortgage without living in the house?

Yes, as non-occupant co-borrowers. They sign the note, are fully liable for the loan, and their income and debts count in the file. On a conventional loan underwritten through Fannie Mae's Desktop Underwriter, the maximum loan-to-value with a non-occupant co-borrower is 95 percent, or 90 percent if manually underwritten. On FHA, the maximum is 75 percent, rising to 96.5 percent when the borrowers are Family Members, except on a two- to four-unit home or when a family member sells to a family member who is the co-borrower.