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 assist with your down payment or closing costs when purchasing a home. Your lender will likely require you to provide evidence of the gift through a letter signed by the donor.
The purpose of this letter is to document that the funds do not need to be repaid and to provide details such as the donor's name, contact information, and their relationship to you.
There are restrictions on who can provide you with gift funds. Typically, money from family members is allowed, and some loan programs may also permit funds from organizations and government programs.
Who Can Provide Gift Funds to Purchase a House?
Family members or individuals with close family ties can usually provide gift funds to help you buy a house. These individuals can be related to you by blood, marriage, or adoption. Additionally, guardians, domestic partners, individuals you intend to marry, godparents, and those with family-like relationships (such as someone you consider an “aunt,” even if not related) can generally provide gift funds as well.
You may also use funds from a government agency, non-profit community, religious organization, or your employer to assist with a home purchase. Furthermore, any money received as a wedding or graduation gift can often be used.
There are specific rules that regulate how and when you can receive this money to make it eligible as gift funds. Consult your lender for guidance on how these rules may apply to your situation.
How Much Money Can You Be Given?
Typically, there are no limits on how much money an individual or organization can give you for your home purchase. However, loan programs may require minimum contributions from the borrower for transactions that involve gifts. Ask your lender about how these requirements might affect you.
Why Do You Need a Mortgage Gift Letter?
Mortgage lenders require documentation that any gift funds used to purchase a home are not loans that need to be repaid. This is important because lenders want to understand your total 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 donor is not receiving anything of value in return, such as an ownership stake in the property. It should also include the donor's name, address, telephone number, and their relationship to the borrower. The donor may not be someone with a vested interest in the sale of the property, such as the seller, real estate agent, builder, or developer.
Your lender may request additional documentation about the gift, such as bank statements, copies of the gift check, or wire transfer confirmations.
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. However, the person giving you the money may be required to pay taxes depending on the amount given and when it is given. If you are considering making a gift to a family member to help them buy a home, consult a tax professional to understand any tax implications.