diff --git a/src/wallet/spend.cpp b/src/wallet/spend.cpp
index d6362c1f143..bffb665fa85 100644
--- a/src/wallet/spend.cpp
+++ b/src/wallet/spend.cpp
@@ -1127,12 +1127,16 @@ bool FundTransaction(CWallet& wallet, CMutableTransaction& tx, CAmount& nFeeRet,
     wallet.chain().findCoins(coins);
 
     for (const CTxIn& txin : tx.vin) {
-        // if it's not in the wallet and corresponding UTXO is found than select as external output
         const auto& outPoint = txin.prevout;
-        if (wallet.mapWallet.find(outPoint.hash) == wallet.mapWallet.end() && !coins[outPoint].out.IsNull()) {
-            coinControl.SelectExternal(outPoint, coins[outPoint].out);
-        } else {
+        if (wallet.IsMine(outPoint)) {
+            // The input was found in the wallet, so select as internal
             coinControl.Select(outPoint);
+        } else if (coins[outPoint].out.IsNull()) {
+            error = _("Unable to find UTXO for external input");
+            return false;
+        } else {
+            // The input was not in the wallet, but is in the UTXO set, so select as external
+            coinControl.SelectExternal(outPoint, coins[outPoint].out);
         }
     }
 
diff --git a/test/functional/rpc_fundrawtransaction.py b/test/functional/rpc_fundrawtransaction.py
index cf9ad3f458d..d07c31a532c 100755
--- a/test/functional/rpc_fundrawtransaction.py
+++ b/test/functional/rpc_fundrawtransaction.py
@@ -408,7 +408,7 @@ class RawTransactionsTest(BitcoinTestFramework):
         inputs  = [ {'txid' : "1c7f966dab21119bac53213a2bc7532bff1fa844c124fd750a7d0b1332440bd1", 'vout' : 0} ] #invalid vin!
         outputs = { self.nodes[0].getnewaddress() : 1.0}
         rawtx   = self.nodes[2].createrawtransaction(inputs, outputs)
-        assert_raises_rpc_error(-4, "Insufficient funds", self.nodes[2].fundrawtransaction, rawtx)
+        assert_raises_rpc_error(-4, "Unable to find UTXO for external input", self.nodes[2].fundrawtransaction, rawtx)
 
     def test_fee_p2pkh(self):
         """Compare fee of a standard pubkeyhash transaction."""