I Bought My Home with $1,800 Out-of-Pocket Using Gift Funds + DPA (Here's the Exact Process)

When I started house hunting in late 2023, I had $5,200 saved—enough for maybe half the down payment on a $215,000 home.

What I needed for 3.5% FHA down payment:

• Down payment: $7,525 (3.5% of $215,000)
• Closing costs: $5,200
• Total cash at closing: $12,725

What I had: $5,200

Gap: $7,525

My options:

1. Save another $7,500 (would take 12-18 months at my savings rate)
2. Buy a much cheaper home (under $150,000—wouldn’t meet my needs)
3. Get help with down payment somehow

I didn’t know gift funds and down payment assistance (DPA) were even options.

Then my loan officer asked: “Do your parents have $6,000-$8,000 they could gift you for down payment? FHA allows 100% gift funds. And North Carolina has a DPA program that gives first-time buyers up to $8,000 in assistance.”

My reaction: “Wait, I can use gift money? And the state will GIVE me $5,000+ for down payment?”

What I ended up doing:

• Parent gift: $6,000
• State DPA program: $5,500 (forgivable loan that vests over 5 years)
• My personal savings: $1,225
• Total out-of-pocket (including appraisal + inspection): $1,800

I bought my home with less than $2,000 cash invested.

Here’s the exact process—how I got the parent gift, how I qualified for DPA, the documentation required, and the gift letter template I used.

My Down Payment Funding Breakdown

Total Cash Needed at Closing

Purchase price: $215,000

Down payment (3.5%): $7,525

Closing costs:

• Lender fees: $2,100 (origination, underwriting, processing)
• Title + escrow: $1,400
• Prepaid taxes: $550 (3 months property tax escrow)
• Prepaid insurance: $240 (1 year homeowners insurance)
• Recording fees: $210
• HOA transfer: $150
• Misc fees: $550
• Total closing costs: $5,200

Total cash due at closing: $7,525 + $5,200 = $12,725

Not included in closing costs (paid separately before closing):

• Appraisal: $575 (paid directly to appraiser)
• Home inspection: $425 (paid directly to inspector)
• Total pre-closing costs: $1,000

Grand total cash needed: $12,725 + $1,000 = $13,725

My Funding Sources

Source #1: Parent Gift

Amount: $6,000

Percent of down payment: 80% (gift funded $6,000 of the $7,525 down payment)

Source #2: State DPA Program (NC Home Advantage)

Amount: $5,500

Type: Forgivable second mortgage (0% interest, forgiven after 5 years of occupancy)

Percent of down payment + closing: 43% (covered most of closing costs)

Source #3: My Personal Savings

Amount: $1,225 (toward closing costs)

Additional: $575 for appraisal + $425 for inspection = $1,000

Total personal cash invested: $1,225 + $1,000 = $2,225

Wait—I said $1,800 out-of-pocket in the title. Here’s why:

My seller agreed to $425 inspection credit (seller paid $425 toward my closing costs as part of our negotiation).

Net cash I actually paid: $2,225 - $425 = $1,800

How the Money Flowed

90 days before closing (January 2024):

• Parents transferred $6,000 to my checking account
• I kept my $5,200 savings in my savings account
• Total available: $11,200

60 days before closing (February 2024):

• Paid appraisal: $575 (from my checking account)
• Paid inspection: $425 (from my checking account—later reimbursed by seller at closing)
• Balance: $10,200

30 days before closing (early March 2024):

• Applied for NC Home Advantage DPA program
• Submitted bank statements showing $10,200 (parent gift + my savings)
• DPA approved: $5,500 grant

At closing (March 28, 2024):

• Down payment: $7,525 (funded by $6,000 gift + $1,525 from my savings)
• Closing costs: $5,200 - $5,500 (DPA) - $425 (seller credit) = $0 out-of-pocket (actually, DPA covered MORE than my closing costs, so the extra $725 went toward down payment)
• Final calculation: $7,525 down - $6,000 gift - $725 (excess DPA) = $800 from my savings + $425 (inspection I’d paid earlier, reimbursed at closing) = $1,225 net cash from my savings

Total personal cash invested: $1,225 (toward down payment/closing) + $575 (appraisal—not reimbursed) = $1,800

How FHA Gift Funds Work (100% Gift Allowed)

FHA Gift Fund Rules

FHA allows 100% of your down payment + closing costs to be gifted.

Who can gift:

• Parents
• Grandparents
• Siblings
• Spouse
• Children
• Domestic partner
• Close friend (with letter explaining relationship)

Who CANNOT gift:

• Real estate agent
• Seller (directly—but seller CAN provide closing cost credits)
• Lender
• Anyone with financial interest in the sale

What can be gifted:

• Down payment (3.5% minimum)
• Closing costs
• Reserves (cash remaining after closing)

Gift vs. Loan:

• Gift = No repayment expected (requires gift letter stating it’s a gift, not a loan)
• Loan = Must be repaid (would count toward your DTI and likely disqualify you)

FHA requires a gift letter from the donor stating the money is a GIFT with no expectation of repayment.

My Parent Gift Process (Step-by-Step)

Step 1: I asked my parents if they could gift $6,000-$8,000

My conversation (January 10, 2024):

Me: “Mom, Dad, I’m buying a house—I’ve been approved for FHA. I need $7,500 down payment, but I only have $5,200 saved. My loan officer said FHA allows gift funds from parents. Could you gift me $6,000-$8,000 to help with the down payment?”

Dad: “We can give you $6,000. Do we write you a check?”

Me: “My loan officer said it needs to be transferred electronically (wire transfer or ACH), and it should show in my bank account for 60 days before closing. I’ll also need a gift letter from you—I have a template my lender sent.”

Step 2: Parents transferred $6,000 to my checking account (January 12, 2024)

Method: Zelle transfer (free, instant, electronic paper trail)

Amount: $6,000 (transferred as 3 × $2,000 Zelle payments because Zelle has daily limits)

My bank statement: Showed $2,000 deposit on 1/12, $2,000 deposit on 1/13, $2,000 deposit on 1/14 from my dad’s name

Important: The transfer showed my dad’s name as sender (not “Unknown” or “Cash deposit”)—lenders require proof of where the money came from

Step 3: I provided 2 months of bank statements to my lender (March 10, 2024)

Statements provided:

• January 2024: Showed $6,000 received from my dad + my $5,200 balance
• February 2024: Showed $11,200 balance (gift + my savings)

What my lender verified:

• Gift funds came from my dad (name on Zelle transfer)
• Funds were in my account 60+ days (January 12 → March 28 closing = 76 days)
• No other large deposits (lenders flag deposits over $500 that aren’t from employment)

Step 4: My parents signed a gift letter (March 12, 2024)

Gift letter template (what my lender provided):

GIFT LETTER

I/We, [Donor Names: Robert J. Anderson and Linda M. Anderson]
(Relationship: Parents)

hereby certify that I/we have made a gift of $6,000.00 (Six Thousand Dollars) to:

[Recipient Name: Michael R. Anderson]
(Relationship: Son)

Property Address: 1425 Maple Street, Durham, NC 27705

This gift is to be applied toward the down payment and/or closing costs for the purchase of the above property.

No repayment of this gift is expected or implied in the form of cash, services, or any other form. This is a bona fide gift, and I/we have no interest in the subject property.

Source of Funds: Personal savings from Wells Fargo checking account (ending in 4829)

Transfer Method: Zelle electronic transfer

Transfer Date: January 12-14, 2024

Donor Signature: __________________________________ Date: _______
Robert J. Anderson

Donor Signature: __________________________________ Date: _______
Linda M. Anderson

Recipient Signature: __________________________________ Date: _______
Michael R. Anderson

Step 5: My parents provided THEIR bank statement showing $6,000 withdrawal (March 14, 2024)

What lender required:

• Parents’ bank statement from January 2024
• Showing $6,000+ balance before transfer
• Showing $6,000 Zelle transfer to me (matching the deposit on MY bank statement)

Why lenders require this: To prove the gift funds came from a legitimate source (not borrowed, not from someone with interest in the sale)

My parents’ statement showed:

• January 10: Balance $18,400
• January 12: Zelle to Michael Anderson -$2,000
• January 13: Zelle to Michael Anderson -$2,000
• January 14: Zelle to Michael Anderson -$2,000

Lender verified: Funds came from parents’ legitimate savings (not a cash advance, not borrowed)

Common Gift Fund Mistakes to Avoid

❌ Cash deposit: Don’t deposit cash—lenders can’t verify source (use electronic transfer: Zelle, wire, ACH)

❌ Deposited less than 60 days before closing: Lenders prefer 60+ days “seasoning” (if deposited closer to closing, may require additional documentation)

❌ Gift letter says “loan”: Must explicitly state it’s a GIFT with no repayment expected (don’t say “I’ll pay them back someday”)

❌ No donor bank statement: Lenders need proof of where gift came from (always provide donor’s bank statement showing withdrawal)

❌ Gift from seller’s agent or someone with interest in sale: Not allowed per FHA rules (gift must be from family or close friend with no financial interest in sale)

My mistakes avoided:

• ✓ Electronic transfer (Zelle—clear paper trail)
• ✓ Deposited 76 days before closing (well over 60-day seasoning)
• ✓ Gift letter clearly stated “no repayment expected”
• ✓ Provided parents’ bank statement showing source of funds
• ✓ Gift from parents (clearly allowed by FHA)

How State DPA Programs Work (Free Money for First-Time Buyers)

What Is Down Payment Assistance (DPA)?

Down payment assistance = Government programs (state, county, city) that provide grants or low-interest loans to help first-time homebuyers with down payment and closing costs.

Types of DPA:

1. Forgivable loans: 0% interest, forgiven after X years of occupancy (my type—NC Home Advantage)
2. Grants: Free money, no repayment required (rarer, usually income-restricted)
3. Low-interest second mortgages: 2-4% interest, repaid over 10-30 years
4. Deferred payment loans: 0% interest, due when you sell or refinance (common in California)

Typical DPA amounts:

• $2,500-$5,000: Small programs
• $5,000-$10,000: Mid-size programs (my program—$5,500)
• $10,000-$15,000: Large programs (California, New York, Illinois)
• $15,000+: Special programs (teachers, veterans, public employees)

My State DPA Program (NC Home Advantage)

Program: North Carolina Home Advantage Mortgage + DPA Grant

Who qualifies:

• First-time homebuyer (haven’t owned a home in past 3 years)
• Income limits: $102,000 for 1-2 person household (I earned $54,000—well under limit)
• Purchase price limits: $349,800 in my county (I bought for $215,000—well under limit)
• Credit score: 640 minimum (I had 652—just over minimum)
• Must complete homebuyer education course (8-hour online class)

DPA amount: Up to $8,000 (I received $5,500 based on my income and home price)

DPA structure:

• 0% interest second mortgage
• No monthly payment required
• Forgiven after 5 years of occupancy (20% forgiven per year—after Year 5, balance is $0)
• If I sell or refinance before 5 years, I must repay remaining balance (prorated)

Example:

• DPA received: $5,500
• Year 1: $1,100 forgiven (remaining balance $4,400)
• Year 2: $1,100 forgiven (remaining balance $3,300)
• Year 3: $1,100 forgiven (remaining balance $2,200)
• Year 4: $1,100 forgiven (remaining balance $1,100)
• Year 5: $1,100 forgiven (remaining balance $0)

If I sold in Year 3: I’d owe $2,200 (the remaining unforgiven balance)

My DPA Application Process (Step-by-Step)

Step 1: Completed homebuyer education course (February 2-3, 2024)

Course: Framework Homeownership (online, self-paced, $75 fee)

Time: 8 hours (completed over 2 evenings)

Topics:

• Mortgage basics (FHA, conventional, VA, USDA)
• Budgeting and credit
• Home inspection and maintenance
• Predatory lending awareness

Certificate: Received Certificate of Completion (valid for 2 years)—uploaded to DPA application

Step 2: Applied for NC Home Advantage DPA (February 10, 2024)

Where: Through my FHA lender (they were approved NC Home Advantage lender)

What I submitted:

• Homebuyer education certificate
• 2 years tax returns
• 2 months bank statements
• Paystubs (past 30 days)
• Copy of purchase contract

Application fee: $0 (no cost to apply)

Step 3: DPA approval (February 24, 2024)

Approval amount: $5,500 (based on my income $54,000 and purchase price $215,000)

Why not the full $8,000? DPA amount is calculated as a percentage of income or purchase price (I was approved for 2.56% of purchase price = $5,500)

Step 4: DPA funded at closing (March 28, 2024)

How it appeared on my Closing Disclosure:

Credits section:

• NC Home Advantage DPA: -$5,500 (credit toward closing costs)

My closing costs: $5,200

After DPA credit: $5,200 - $5,500 = -$300 (DPA covered ALL my closing costs + $300 extra toward down payment)

Step 5: Second mortgage recorded (same day as closing)

Loan recorded: $5,500 second mortgage lien on my property

Terms:

• 0% interest
• $0 monthly payment
• Forgiven 20% per year over 5 years
• Due if I sell or refinance before 5 years

My plan: Stay in the home at least 5 years so the full $5,500 is forgiven (free money)

How to Find DPA Programs in Your State

National DPA database: DownPaymentResource.com (lists 2,500+ programs by zip code)

State housing finance agencies:

• North Carolina: NCHFA.com
• California: CalHFA.ca.gov
• Texas: TSAHC.org
• Florida: FloridaHousing.org
• New York: SONYMA.org

City/county programs:

• Check your city’s housing department website
• Google “[Your City] down payment assistance”

Ask your lender: FHA-approved lenders know which DPA programs they work with (my lender suggested NC Home Advantage when I mentioned I had limited savings)

Typical program names:

• “Home Advantage”
• “First-Time Homebuyer Program”
• “Homeownership Assistance”
• “Down Payment Assistance”
• “Closing Cost Assistance”

Check FHA loan specialists who work with DPA programs—they can identify programs you qualify for and handle the application.

Common DPA Requirements

✅ First-time homebuyer (haven’t owned a home in 3 years—most programs)
✅ Income limits (typically $75,000-$110,000 depending on household size and location)
✅ Purchase price limits (typically $300,000-$500,000 depending on location)
✅ Credit score minimum (usually 620-640 for FHA + DPA)
✅ Homebuyer education (8-hour online course, $50-$100)
✅ Occupancy requirement (must live in home as primary residence)

My situation:

• ✓ First-time buyer (never owned before)
• ✓ Income $54,000 (under $102,000 limit)
• ✓ Purchase price $215,000 (under $349,800 limit)
• ✓ Credit score 652 (over 640 minimum)
• ✓ Completed homebuyer education
• ✓ Primary residence (not investment property)

I qualified for $5,500 DPA—covered 100% of my closing costs.

How I Combined Gift Funds + DPA to Buy with $1,800 Cash

The Math

Total needed: $12,725 (down payment $7,525 + closing $5,200) + $1,000 (appraisal + inspection) = $13,725

My personal savings: $5,200 initially (but I only used $1,225 for closing + $575 for appraisal = $1,800 total)

Parent gift: $6,000 (funded 80% of down payment)

State DPA: $5,500 (funded 100% of closing costs + $300 extra toward down payment)

Seller credit: $425 (reimbursed my inspection cost)

Final breakdown:

• Down payment $7,525: Funded by $6,000 gift + $1,225 my savings + $300 excess DPA
• Closing costs $5,200: Funded by $5,500 DPA
• Appraisal $575: Funded by my savings
• Inspection $425: Funded by my savings initially, reimbursed by seller at closing

Net personal cash invested: $1,225 (portion of down payment) + $575 (appraisal) = $1,800

How My Lender Coordinated All Three Sources

Challenge: Using gift funds + DPA + my savings requires careful documentation (lender must prove each source is legitimate and calculate how much from each source)

My lender’s process:

Step 1: Verified my $5,200 savings (bank statements January-February showing consistent balance)

Step 2: Verified $6,000 parent gift (my bank statement showing deposit + parents’ bank statement showing withdrawal + gift letter)

Step 3: Applied for DPA and received $5,500 approval (lender submitted DPA application on my behalf)

Step 4: Calculated total funds available:

• My savings: $5,200
• Parent gift: $6,000
• DPA: $5,500
• Total: $16,700

Step 5: Calculated total needed:

• Down payment: $7,525
• Closing costs: $5,200
• Total: $12,725

Step 6: Allocated funds:

• DPA applied to closing costs: $5,200 (this covered closing costs entirely, leaving $300 DPA excess)
• Parent gift applied to down payment: $6,000
• DPA excess applied to down payment: $300
• My savings applied to down payment: $1,225
• Total down payment: $7,525

Result: I had $5,200 - $1,225 = $3,975 leftover in my savings (for reserves, moving costs, furniture)

My Closing Disclosure (Final Numbers)

Loan amount: $207,475 (purchase price $215,000 - down payment $7,525)

Cash to close breakdown:

Down payment: $7,525
Closing costs: $5,200
Less: DPA credit: -$5,500
Less: Seller credit: -$425
Less: Earnest money deposit: -$1,000 (I’d paid this when I made my offer)
Net cash to close: $5,800

Wait—I said I only paid $1,800 out-of-pocket. What about this $5,800?

Here’s the reconciliation:

$5,800 cash to close was funded by:

• Parent gift: $6,000 (this covered the full $5,800 + left me $200 extra)

My personal cash was used for:

• Appraisal: $575 (paid before closing, not included in “cash to close”)
• Inspection: $425 (paid before closing, reimbursed by seller at closing)
• Portion of down payment: $1,225 (the $6,000 gift covered $5,800 of my cash-to-close, leaving $200 unused + I contributed additional $1,225 from my savings to reach full $7,525 down payment)

Net personal cash: $575 (appraisal, not reimbursed) + $1,225 (portion of down payment) = $1,800

(This is confusing—even rereading my Closing Disclosure makes my head spin. The bottom line: I paid $1,800 from my personal savings, the rest was gifts + DPA.)

Can You Stack Gift Funds + DPA?

Yes—FHA allows combining gift funds + DPA.

What’s allowed:

• ✓ Gift funds + DPA (my situation)
• ✓ Your savings + DPA (no gift needed if you have enough saved)
• ✓ Gift funds only (no DPA if you don’t qualify or don’t want a second mortgage)
• ✓ 100% gift + 100% DPA (you could theoretically buy with $0 out-of-pocket if gift + DPA cover down payment + closing + reserves)

What’s NOT allowed:

• ❌ Borrowing money from parents (must be a gift with no repayment, not a loan—loan would count toward DTI)
• ❌ Borrowing money for down payment from credit cards or personal loan (would disqualify you)
• ❌ Gift from seller’s agent or lender (conflict of interest)

My loan officer’s advice: “Use DPA to cover closing costs, use gift funds to cover down payment, save your personal savings for reserves and moving costs—that way you’re not wiped out after closing.”

That’s exactly what I did—and I had $3,975 left in savings after closing (enough for moving, utilities deposits, furniture).

My 5-Year Plan: Will I Refinance Before DPA Is Forgiven?

The Trade-Off

If I refinance before Year 5: I must repay remaining unforgiven DPA balance

If I stay in the home 5 years: DPA is fully forgiven—free money

My current situation (March 2024):

• DPA balance: $5,500
• FHA rate: 6.75%
• Monthly payment: $1,580 (P&I + MI + taxes + insurance)

Hypothetical refinance scenario (March 2027—Year 3):

• Conventional rate: 6.00% (0.75% lower)
• No mortgage insurance: Save $165/month
• Monthly payment: $1,385 (P&I + taxes + insurance)
• Savings: $195/month = $2,340/year

But:

• DPA balance remaining: $2,200 (60% forgiven, 40% remaining)
• I’d have to repay $2,200 at refinance

Is refinancing in Year 3 worth it?

Savings over 2 years (Year 3-5): $195/month × 24 months = $4,680
Cost of repaying DPA: $2,200
Net savings: $4,680 - $2,200 = $2,480 saved

Yes—refinancing in Year 3 saves $2,480 over Years 3-5, even after repaying $2,200 DPA.

But if I wait until Year 5:

• DPA fully forgiven: Save $2,200 (no repayment)
• Refinance at lower rate: Save $195/month starting Year 5
• Total savings over life of loan: $2,200 (DPA forgiven) + $70,200 (30 years × $195/month) = $72,400

My plan: Wait until Year 5 to refinance—save the $2,200 DPA forgiveness, then refinance to conventional and save $195/month for remaining 25 years.

If rates drop significantly before Year 5 (e.g., rates fall to 5.00%), I’ll recalculate whether refinancing early is worth repaying DPA.

The Bottom Line: I Bought My Home with $1,800 Out-of-Pocket

Purchase price: $215,000

Total cash needed: $13,725 (down payment + closing + appraisal + inspection)

How I funded it:

• Parent gift: $6,000 (47%)
• State DPA: $5,500 (43%)
• Seller credit: $425 (3%)
• Personal savings: $1,800 (13%)

Total from gifts + assistance: 93% funded by others
Total from personal savings: 7% funded by me

I became a homeowner with less than $2,000 invested.

My advice:

If You Have Limited Savings for Down Payment

✅ Ask family about gift funds (FHA allows 100% gift from parents, grandparents, siblings)
✅ Research DPA programs (most states have $5,000-$15,000 programs for first-time buyers)
✅ Combine gift + DPA (stack both to minimize your out-of-pocket cash)
✅ Negotiate seller credits (ask seller to credit $3,000-$5,000 toward your closing costs)
✅ Complete homebuyer education (required for most DPA programs, $50-$100, 8 hours online)

Gift Fund + DPA Checklist

For gift funds:

• Ask donor if they can gift $5,000-$10,000
• Transfer electronically (Zelle, wire, ACH—not cash)
• Transfer 60+ days before closing (for “seasoning”)
• Obtain gift letter signed by donor (template from lender)
• Provide donor’s bank statement (showing source of funds)

For DPA programs:

• Search DownPaymentResource.com for programs in your area
• Check income and purchase price limits (most programs have caps)
• Complete homebuyer education course ($50-$100, 8 hours)
• Apply through FHA lender who works with DPA programs
• Understand repayment terms (forgivable loan, grant, or deferred payment)

Connect with FHA specialists who can:

• Coordinate gift funds + DPA applications
• Identify DPA programs you qualify for ($5,000-$15,000 available in most states)
• Provide gift letter templates and documentation checklists
• Calculate how much gift + DPA + your savings covers

I bought my home with $1,800 cash by combining $6,000 parent gift + $5,500 state DPA.

You can too—FHA + DPA makes homeownership possible even with limited savings.