Mortgage 101

How to Write a Gift Letter for a Mortgage

Published on: March 4, 2022

gift letter for mortgage

If someone gives you money to go toward the down payment on your house, the lender typically asks you to provide a mortgage gift letter and documentation to prove the money is yours to keep. This gift letter is essentially an official statement from the donor stating the money given isn’t expected to be repaid.

Writing a correct gift letter for a mortgage down payment will ensure you’ll increase your chances of loan approval. Here’s what you need to know about this document, including how to write one, along with a free gift letter for mortgage template.

What is a mortgage gift letter and why do lenders need it?

A gift letter for a mortgage is a written document from the donor — the person gifting the money — indicating the money is not a loan and doesn’t need to be repaid. Think of the down payment gift letter as proof that you’re providing to your lender that the money is yours to keep. The gift letter needs to include details such as the donor’s personal information, where the money is coming from, and your relationship to the donor.

The point of a gift letter is also to assure the lender the money in your accounts is truly yours. Since gift funds tend to be large deposit amounts, lenders will want to scrutinize these types of transactions during the mortgage underwriting process.

That way, when the lender assesses your financial situation during the underwriting process, such as by reviewing your assets, they can be reassured you have the means to afford mortgage payments. Borrowing money, especially for a down payment, may signal to lenders you’re not financially ready for such a huge loan.

How to write a gift letter for a mortgage: Rules and requirements

The following are the key components of a gift letter you need to include:

  • Donor’s name and contact details: The lender may need to contact the donor to confirm additional information.
  • Donor’s relationship to the mortgage applicant: Some types of mortgages have restrictions as to who can give down payment gifts. For example, conventional fixed-rate or adjustable-rate loans, such as the ones from Fannie Mae, allow gift funds from spouses, domestic partners, and relatives. FHA loans, on the other hand, also allow others, such as a close friend or qualifying public entity, to give gift money.
  • The exact dollar amount given as a gift: The lender will need this amount to ensure it’s well within the allowed amount. For example, most borrowers purchasing primary residences can have all of the down payment come from gift money. Whereas for second properties, a percentage of funds may need to come from the borrower if the down payment is less than 20%.
  • Date the gift money was transferred: This date should be the same as when the gift was given, such as when the donor conducted a bank transfer or dated a personal check.
  • A donor’s statement: This component of the letter should indicate the money given is a gift and doesn’t need to be repaid since it’s not a loan.

The donor should also sign the letter to make the document official.

To help you further understand how to write a gift letter, here is a gift letter sample:

Dear Finance of America Mortgage,

I, Delia Smith, certify that I, the donor, have given a gift of $10,000 to Emmanuel Chan.

There is no repayment required (whether implied or expected) because it is a gift. Emmananel Chan is my legally adopted son.

The gift money is to be used toward the purchase of the principal residence at the following location:

123 Candy Cane Lane,

Allcity, Florida 32567

I have conducted a bank transfer on December 15, 2021, of $10,000 from the following account:

Name: Bank of Anywhere

Account number: 12345678
Routing number: 90123456

Type of account: checking

If you have any questions, please contact me using the following information:

Delia Smith

456 Donor Lane

Donorland, Ohio 45678

(123)555-6789

Sincerely,

Delia Smith

Gift letter for mortgage template

Feel free you use the down payment gift letter template for your own use by filling in the blanks.

Dear [lender name],

I, [donor name], certify that I have given a gift of [dollar amount] to [recipient name]. There is no expected or implied payment required because the money is a gift. [Recipient name] is [relationship to donor].

The gift money is to be used toward the purchase of [type of property, such as primary or secondary residence] at the following location:

[intended address of recipient]

I have used [payment method] on [date] to give the gift of [dollar amount] from the following account:

[Name of financial institution]

[Account number]

[Routing or ABA number]

[Type of account]

If you have any questions, please contact me using the following information:

[Donor’s name]

[Donor’s address]

[Donor’s phone number]

Sincerely,

[Signature of donor]

[Donor’s printed name]

How much money can be gifted in a mortgage and who can it come from?

For a primary residence, the donor is able to gift the entire down payment amount as long as it falls within the lender’s minimum requirements. For instance, FHA loans have a minimum down payment amount of 3.5% of the purchase price, whereas for conventional mortgages, this amount can be as low as 3%. (Both minimums depend on your credit score.)

However, conventional loans don’t allow gifts for investment properties. Government-backed loans such as FHA and VA loans typically can only be used for primary residences.

Lenders also have restrictions as to who can be the donor of a mortgage gift:

  • Conventional loans: Borrower’s domestic partner, spouse, or relative that’s related by blood, marriage, legal guardianship, or adoption.
  • FHA loans: Relative, qualifying charitable organization, government agency that provides assistance for homebuyers, borrower’s employer or labor union, or a close friend with an interest in the borrower.
  • VA loans: Anyone who doesn’t have an invested interest in the property being sold.

Keep in mind that the donor may be required to pay taxes if the amount given is above the IRS’ annual exclusion amount, which is $16,000. Donors will need to report gift amounts that are higher than the exclusion amount — the recipient does not have to. However, there may be some exceptions, such as if you’re gifting down payment funds to your spouse.

If you are buying a home from a family member of friend, they may provide a gift of equity. This amount is the difference between what the home is worth and the home’s selling price. The gift is given to the recipient (the buyer) as a credit at closing. Instead of exchanging actual cash, the gift is the amount of equity given, and the donor will need to provide a gift letter and accompanying documentation to the lender.

The rules for gifting may differ depending on loan type:

Conventional loans: Only relatives, domestic partners, or a fiancé/fiancée may give a gift of equity.

FHA loans: Only family members may give gifts of equity.

VA loans: Gifts of equity aren’t allowed.

If you’d like to learn more about how a mortgage gift can help you get closer to homeownership, talk to a local Finance of America Mortgage Advisor today.

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