What Is a Gift Letter for a Mortgage?

How to Use Gift Funds to Buy a House

You can often use gift funds from an acceptable source to help make a down payment or pay closing costs when you buy a house. Your lender will probably require you to provide evidence of the gift in a letter signed by the donor.

The purpose of this letter is to document that the money does not need to be repaid as well as the donor's name, contract information, and relationship to you.

There are restrictions on who can provide you with gift funds. You can typically use money from family members. Some loan programs may allow you to use money from organizations and government programs, too.

Who Can Provide Gift Funds to Purchase a House?

Family members or people who have close family ties to you can usually provide gift funds to help you buy a house. These individuals can be related to you by blood, marriage, or adoption. Guardians, domestic partners, persons you intend to marry, godparents, and people with family-like relationships (such as a person who you consider an “aunt,” even though you are not related) can generally provide gift funds as well.

Many times, you can use money from a government agency, non-profit community, religious organization, or your employer to assist with a home purchase. You can also generally use money you may have received as a wedding or graduation gift.

There are rules that regulate how and when you receive this money to make it eligible to be used as gift funds. Ask your lender how these rules may affect you.

How Much Money Can You Be Given?

There aren't usually limits on how much money a person or an organization can give you to buy a house. However, loan programs often require minimum borrower contributions for transactions that contain gifts. Ask your lender how these rules may affect you.

Why Do You Need a Mortgage Gift Letter?

Mortgage lenders want to document that any gift funds you use to buy a house are not a loan that needs to be repaid. This is important because when lenders are deciding whether or not to approve your application, they want to know the cost of all your monthly debt payments, not just your mortgage payment. The gift letter confirms that the money you received is not a debt.

The letter should state that the person giving you the money is not getting something of value in return, such as an ownership stake in the property. The letter should also state the donor's name, address, telephone number and relationship to the borrower. The gift donor may not be a person or entity with an interest in the sale of the property such as the seller, real estate agent, builder, or developer.

Your lender may ask you for additional documentation about the gift, such as bank statements, copies of the gift check, or wire transfer confirmations.

Sample Gift Letter for a Mortgage

[Date]

To Whom It May Concern:

I, [Donor's Name], am giving [Your Name/Names] the amount of [Gift Amount] as a gift to be used for the purchase of a home at [Address].

I declare that this money is a gift, and that no repayment is required or expected. I am making this gift solely for the purpose of assisting [Your Name/Names] in purchasing a home.

I certify I am the legal owner of these funds and have the legal right to give them to [Your Name/Names]. This money does not come from a loan.

I also certify that there are no conditions or obligations attached to this gift, and that it is non-refundable, non-transferable, and no interest is payable.

I have no ownership or interest in any property that may result from the use of these gift funds.

My relationship to [Your Name/Names] is [state relationship]. These funds come from our [account type] with [Name Institution].

[Your Name/Names] intend(s) to use this gift for the purchase of a home, and the funds will be used exclusively for the down payment or closing costs of the home.

Sincerely,

[Donor's Name]

[Donor's Address]

[Donor's phone number]

Do You Have to Pay Taxes on Gift Money?

No. You generally do not need to pay taxes on any money you receive as a gift. The person giving you the money may be required to pay taxes on it, depending on how much they give and when they give it. If you are considering making a gift to a family member to help them buy a home, consult a tax professional to better understand the taxes you may need to pay.