If a parent, grandparent, or other relative has offered to help you buy your first home, here’s the good news up front: that money can cover your entire down payment. Not part of it — all of it.

This is one of the most common questions I hear from first-time buyers in the Sioux Falls metro, and most people assume the rules are stricter than they actually are. They’re not. What trips buyers up isn’t whether they’re allowed to use gift money — it’s the paperwork. Get that part wrong and it can stall your loan a week before closing.

So let’s walk through exactly how gift funds work here, what your lender will ask for, and how to keep the whole thing clean.

How much can actually be gifted

On a primary residence, there’s no cap on how much a family member can give you toward the purchase. A relative could gift you the full down payment, and in 2026 that’s a completely normal, fully allowed way to buy.

Here’s what that looks like against the roughly $340,000 Sioux Falls median:

  • FHA at 3.5% down: about $11,900 — a gift can cover every dollar
  • Conventional at 5% down: about $17,000 — again, fully giftable
  • Conventional at 20% down: about $68,000 to skip mortgage insurance — still allowed as a gift

Both loan types you’ll most likely use here follow the same core rule. Fannie Mae and Freddie Mac (conventional) let a relative fund 100% of the down payment on a one-unit primary home. FHA lets the full 3.5% come from a gift. If you’re comparing those two paths, my breakdown of FHA loans in Sioux Falls lays out where each one wins.

One thing gift money does not automatically change: how much house you qualify for. Your loan approval still rides on your income, your debts, and your credit — the gift just solves the cash-to-close side. If you’re not sure where your number lands, start with how much house you can actually afford here.

Who’s allowed to give you the money

Lenders care about the source, so the donor matters.

Conventional loans accept gifts from a relative by blood, marriage, adoption, or legal guardianship — plus a domestic partner or a fiance. So parents, grandparents, siblings, aunts, and uncles all clear easily.

FHA is more generous. On top of family, FHA allows a gift from a close friend with a clearly documented interest in your life, an employer, a labor union, a charity, or a government agency.

The one hard line on both: the money can’t come from anyone with a stake in the sale. That means no gifts from the seller, the builder, the listing agent, or anyone connected to the transaction. There’s one exception worth knowing about, and it’s a good one.

Buying from a relative? Look at a gift of equity

If you’re buying a home directly from a family member — say a parent selling you their house — they can sell it to you below market value and count the difference as your down payment. That’s called a gift of equity.

Picture a home that appraises at $320,000 that your parents sell you for $290,000. That $30,000 difference can serve as your down payment without a single dollar changing hands. You’ll need an appraisal to establish market value and a gift-of-equity letter, but it’s a clean way to buy within the family.

The paperwork that actually matters

This is where deals get delayed, so pay attention to this part more than any other.

Your lender needs two things: a gift letter and a paper trail.

The gift letter is a short signed statement. It has to include:

  • The donor’s name, address, and phone number
  • Their relationship to you
  • The exact dollar amount of the gift
  • The address of the home you’re buying
  • A clear line stating the money is a gift with no expectation of repayment
  • The donor’s signature — and usually yours

That word “no repayment” isn’t a formality. If the money is actually a loan, it changes your debt picture, and lenders will not treat a disguised loan as a gift. It has to genuinely be a gift.

The paper trail is the part people forget. Your lender wants to trace the money from the giver’s hands into yours. In practice that means a copy of the donor’s check or wire alongside a deposit record showing it landed in your account, or the donor’s bank statement showing the withdrawal. A large, unexplained deposit that suddenly appears in your account is a red flag to an underwriter — even when it’s a completely legitimate gift.

Here’s the move that avoids all of it: get the gift into your account early. Money that’s been sitting in your account for at least 60 days — two full statement cycles — is considered seasoned, and lenders generally stop asking where it came from. Transfer the gift before you’re deep into house hunting and you sidestep the whole scramble.

What about taxes?

This scares people off for no reason. You, the person receiving the gift, never owe income tax on it. Full stop.

The giver has a limit before any paperwork kicks in — $19,000 per person in 2026. So your parents could give $19,000 each, or $38,000 as a couple, to you with zero filing required. Go above that and the giver files a simple IRS Form 709, but no tax is actually due until their lifetime gifts pass $15 million. For the vast majority of families helping with a down payment, this is a non-issue.

South Dakota adds a real advantage here. With no state income tax and no state gift tax, there’s nothing extra to file at the state level — a small perk buyers moving in from Minnesota or Iowa notice right away.

How it plays out at a Sioux Falls closing

A couple of local mechanics are worth knowing before you’re at the finish line.

South Dakota closings run through a title company — Eastern Title or First Dakota Title, for example — not an escrow company like you’d see in other states. Your gift money typically lands in your bank account first, gets documented, and then wires to the title company for closing.

That wire is exactly where you need to slow down. Wire fraud is the single biggest threat in a real estate transaction. Before you or your donor sends any money, call the title company using a phone number you already have — never a number from an email — and verbally confirm the wiring instructions. Scammers spoof closing emails constantly, and a wire sent to the wrong account is almost impossible to recover.

Also keep a little of your own cash on hand. Even when a gift covers the full down payment, your lender may want to see modest reserves, and you’ll still need earnest money and funds for the closing costs that come on top of the down payment.

And if the gift only gets you partway there, you have another lever. A family gift can often stack with South Dakota Housing down payment assistance to shrink your cash to close even further. The combination rules vary by program, so that’s a conversation to have with an SDHDA-approved lender before you write your offer.

Frequently Asked Questions

Can my parents pay my entire down payment on a Sioux Falls home?

Yes. On a primary residence, both conventional and FHA loans let a family member gift 100% of your down payment. On the roughly $340,000 Sioux Falls median, that’s about $17,000 at 5% down or $11,900 on an FHA 3.5% down payment. You’ll need a signed gift letter and a paper trail showing where the money came from.

Do I have to pay taxes on gift money for a down payment?

No. The person receiving the gift never owes federal income tax on it. The giver can hand over up to $19,000 per person in 2026 with no filing at all, and larger gifts only require a simple IRS Form 709 — no tax is actually due until lifetime gifts pass $15 million. South Dakota has no state income or gift tax, so there’s nothing extra at the state level.

Who is allowed to give me gift funds for a mortgage?

Conventional loans accept gifts from a relative by blood, marriage, adoption, or legal guardianship, plus a domestic partner or fiance. FHA is broader and also allows a documented close friend, employer, labor union, charity, or government agency. The one person who can’t gift you the money is anyone tied to the sale — the seller, builder, or agent.

How soon should the gift money be in my account?

As early as you can manage. Money that’s been in your account for at least 60 days, two full statement cycles, is considered seasoned, and lenders generally stop asking where it came from. Transfer it before you’re deep into underwriting and you avoid a last-minute document scramble.

Can gift funds be combined with South Dakota down payment assistance?

Often, yes. A family gift can stack with SDHDA down payment assistance to lower your out-of-pocket cash even further, but the layering rules vary by program. Confirm the specific combination with an SDHDA-approved lender before you write your offer.

The bottom line

Gift money is one of the most powerful tools first-time buyers in Sioux Falls have, and the rules are far friendlier than most people expect. The whole game is documentation — get the money in early, get a clean gift letter, and keep the paper trail tight.

If someone in your family is ready to help and you want to map out exactly how much you’d need and how to structure it, that’s the kind of thing I walk buyers through before we ever look at a house. Reach out anytime at 605-201-2846 or through siouxfallsgreathomes.wordpress.com, and we’ll run your real numbers together.

About Jeff Merrill
Jeff Merrill leads The Jeff Merrill Team, powered by eXp Realty, serving Sioux Falls and the surrounding South Dakota communities of Madison, Mitchell, Canistota, and beyond. He helps motivated buyers, sellers, and new agents cut through the hype in real estate with honest guidance, hands-on mentorship, and a track record of real results. Connect with Jeff at siouxfallsgreathomes.wordpress.com or 605-201-2846.