Why lenders need a gift letter
Lenders need to know where your down payment comes from. If someone gives you money, the lender has to confirm you won't have to pay it back. A loan would be another debt that could affect whether you can afford the mortgage. The gift letter puts that in writing.
What to include
Your loan consultant can usually provide a form, so you don't have to write it from scratch.
- The giver's name, address and phone number
- The giver's relationship to you
- The exact gift amount
- The date the money was or will be given
- The property address
- A statement that no repayment is expected or required
- Signatures and dates from the giver, and often from you too
The paper trail
The letter alone usually isn't enough. Lenders want to see the money leave the giver's account and arrive in yours, or go straight to the settlement agent.
Deposit the gift as one transaction, and avoid moving it between accounts before closing. It makes the trail easier to follow.
If the giver sends cash rather than a check or wire, it can be hard to document. Cash deposits are often difficult for lenders to accept, so use a traceable method. If the gift came in before you applied and has been sitting in your account for a while, ask your loan consultant whether the full trail is still needed.
- A copy of the check or wire receipt
- The giver's bank statement showing the withdrawal
- Your bank statement showing the deposit
Who can give a gift
Rules depend on the loan program. Family members are usually allowed. Some programs also allow others, such as a fiancé or domestic partner, a close friend or an employer. Gifts from anyone with an interest in the sale, such as the seller or a real estate agent, generally aren't allowed as gifts.
Timing
Tell your loan consultant about a gift early. If the money arrives after your bank statements are pulled, you may need to send updated statements. If it's wired to closing, the settlement agent will need the details ahead of time.
Tax questions
The giver may have gift tax reporting rules to follow, depending on the amount. The receiver usually doesn't owe tax on a gift. Ask a tax professional about your situation.
A sample letter
Most lenders use their own form, but a gift letter usually reads something like this: "I, [giver's name], am giving [buyer's name], my [relationship], a gift of $[amount] toward the purchase of [property address]. No repayment of this gift is expected or required, now or in the future. The funds come from my own account." The giver signs and dates it, and adds contact details so the lender can confirm if needed.
