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How to Write a Mortgage Gift Letter

Written by Nickel - 38 Comments

Often times a propsective homebuyer can’t come up with sufficient funds for a downpayment in order to qualify for a mortgage on the home they want to purchase. While there are a number of options out there, including no-money down or low-money down mortgages, another alternative would be to procure the necessary funds from a family member.

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In my experience, lenders often frown on using borrowed money to make a down payment (although they do make exceptions in the case of things like 80/10/10 or 80/15/5 mortgages). This is where the gift letter comes in… If a family member is willing to provide ou with funds for the purchase of your house free and clear of any repayment obligation (i.e., a gift as opposed to a loan), then you’re in the clear. You simply need a gift letter from them stating that this is the case. So how do you write a gift letter?

According to CapitalOne Home Loans, a gift letter is defined as:

A letter to the lender from the donor stating a gift of money has been made to the buyer in order to purchase specific property. The relationship of the donor and donee is stated, as well as the amount of the gift.

On top of this, we’ve been told that the letter should also specify that there is no expectation of repayment (I always thought that was implicit when one is talking about a gift, but apparently not).

In view of the above, a gift letter that meets these requirements might look something like this:

To whom it may concern,

The purpose of this letter is to state that I am giving my (relationship between donor and recipient), (recipient’s name), a gift of ($XX,XXX) to be used toward the purchase of a home. There is no expectation of repayment of this gift.

Sincerely,
(donor’s name)

The letter should also be signed and dated.

As a side note (and no, I’m not recommending this), I heard from our mortgage broker that the gift letter is used solely for underwriting purposes, and that no information is forwarded to the IRS. Assuming this to be true, it’s conceivable that you could work around the loan vs. gift issue without getting into hot water regarding gift taxes. For example, consider the case of a no-interest loan from a family member (more on this sort of thing in a future post) wherein the provider of said loan agrees to furnish a gift letter for underwriting purposes, making it ‘officially’ a gift in the eyes of the underwriter, but unofficially an under-the-table loan amongst family members.

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Published on April 5th, 2006
Modified on September 16th, 2013 - 38 Comments
Filed under: Mortgages, Real Estate

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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38 Responses to “How to Write a Mortgage Gift Letter”

  1. 1
    Making Our Way Says:

    $0.05,

    Very interesting idea the gift letter.

    I have a question, my lenders, in the past, reqquired that downpayment money be “seasoned”. This means that it had been in my possession for more than 90 days.

    I wonder how it applies to money gifted from a relative for a downpayment?

    Have a wonderful Wednesday,
    Making Our Way

  2. 2
    nickel Says:

    As I understand it, no, the money doesn’t have to be in your possession for an extended period of time. In fact, one lender that I’ve talked to has a template for the letter, and it includes a request for info regarding the account that the gift funds will come from, such that they can verify that the funds actually exist. So in this case, the funds don’t even have to be in your possession yet. They just want proof that the funds exist and that you will have access to them. As far as the money being ’seasoned’ goes, that’s probably to get the deposit outside the range of what the underwriter will look at in terms of account statements. If they see a large deposit, they’ll want to know where it came from. If the funds appear to have been there all along (because you made the deposit over 90 days ago), they’ll just assume that it was your money in the first place.

  3. 3
    RS Says:

    It was a long time ago…so I may be forgetting exactly how it went, but my wife and I got a gift from her parents to buy our first house and we didn’t need a letter. I think that they did ask us about it, but didn’t require a letter. I could be wrong though.

  4. 4
    jim Says:

    Gee that gift letter sure looks familiar… :)

  5. 5
    nickel Says:

    Hah! Just searched your site and found your example. I guess there’s not many ways of saying it. However, our mortgage broker did end up sending a much more complicated form that asked for the donor’s bank account info, etc. I guess that’s to be sure that the funds are available if you haven’t deposited them yet. Much easier to stick with the simple letter, though, if it’s clear that you already have the funds.

  6. 6
    Akhil Says:

    What is the benefit of submitting this letter versus not submitting it and taking the loan from a family member “off the record”

  7. 7
    amanda Says:

    I am a Sr. Processor for a mortgage company, and often the closing monies do need to be “seasoned” usually 60days, but sometimes 90days. but not for gifts, expecially if it’s a gift of equity.

    As for having the money given to you “off the record” this is the better way to go, if you have someone whose willing to give you the money ahead of time, deposit it in your bank right away so that you can meet the “seasoning” requirement. It is better to go this route if possible as more programs will be available to you.

  8. 8
    Maria West Says:

    I have a customer who is actually purchasing a property from a relative. The balance on the mortgage being $101,000…the selling price is $150,000. The property, though, is appriaised at around $400,000. The lender wants a “gift letter” from the seller. (These are two cousins.) How should the gift letter be drawn up? What needs to be stated in the letter?

    Maria (Savannah)

  9. 9
    Fifi Sani Says:

    so regarding the gift equity….will the seller be taxed on the purchased price when really they only recieved the purchase price minus the gift equity? or can they write of their gift equity?

  10. 10
    lucky Says:

    But what If the donation if from a non-relative such as a future father in law???

  11. 11
    nickel Says:

    Lucky: A gift is a gift. They’re worried that a bunch of money that suddenly appears in your account might be an under the table loan, which would make you a bigger risk. I would imagine that he could just say that he’s your future father-in-law, and that he’s giving you a gift to be used toward the purchase of a home. They just want to be sure that you’re not over-extending yourself by borrowing money from other people and using that as your down payment. They want the down payment to be *your* money (gift or otherwise).

  12. 12
    Cristie Says:

    My limited understanding of the gift tax law is that a gift will not get you into “hot water” with the IRS unless you do not claim said gift on your income tax return (form 709). You can give up to $12,000 per giftee tax-free. The remainder of the gift is subject to a gift tax, however, the tax can be applied against the unified tax credit (the most you can give in your lifetime). For example, you give your daughter and your son-in-law each $25,000. The first $12,000 each is exempt. The remaining $13,000 each, or $26,000, is subject to a gift tax of about $5,000. You apply this to your unified tax credit, and do not have to “pay” any additional taxes, simply use form 709. Of course, you have reduced by $5,000 the amount you can exempt for future gifts or your estate upon your passing. The recipient has no income tax ramifications from a gift. Assuming your estate is not over $2 million, it probably can’t hurt to take advantage of this method of gifting. Please correct me if I am wrong.

  13. 13
    needs help Says:

    okay, i have a question and i would really some help.

    here’s the scenario. my husband and i just got married (about 2 months ago) and have found a house. unfortunately his credit is bad so we opted to take out the mortgage under my name only. our parents are each offering to lend us 15K for the down payment with the understanding that we will pay them back within 7 years. Now, the bank has approved me for the price of this home (which we are in contract for), with the understanding that i will be putting 20% down. With these loans from our parents we’re in the clear, but our parents don’t want to sign the gift letter saying that this is a full gift because this is not the case. we have only 2 weeks until our closing date.

    what can we do about this? is there any way around the gift letter? do all lenders ask for a gift letter?

  14. 14
    Eva Says:

    Can I receive gift money for a downpayment from another country?

  15. 15
    Nicole Says:

    Eva – My uncle is an EU citizen and will be gifting us the money for our down payment. We asked the bank today whether that’s a problem, and they said it doesn’t make a difference – they just need the gift letter and we need to be sure that we leave enough time for the wire transfer to come through from overseas before our closing date (in the past it has taken 7-9 business days).

  16. 16
    Richard McCullough Says:

    What if a family member gives a cash gift to his daughter and her husband every year and you want the mortgage company to recognize this for approval purposes on a refinance? How do you write the letter? How much can the daughter and her husband receive from the family member in the state of Maryland?
    Thank you!!

  17. 17
    iling Says:

    Hi
    Can someone give me an example of a letter stating that person A is giving Person B a property as a gift with no expectation of repayment?
    Would we need to state the property value to date?

    thanks!

  18. 18
    Ashok Phanshikar Says:

    My uncle is an EU citizen and will be gifting us the money for our down payment. We asked the bank today whether that’s a problem, and they said it doesn’t make a difference – they just need the gift letter with no expectation of repayment

    i just want to know how to make a letter for the same

  19. 19
    Susan Says:

    Hi everyone,

    We are in the process of purchasing a home; the bank is asking us a down payment of 25% we have the money but we have it cash (not in the bank) now we didn’t know that we couldn’t pay the in cash until now. The bank told us that we can receive a gift from a family member and then we could give them the cash. The closing is at the end of the next month, will it flag a red flag to the bank / IRS if we deposit 17K in a family member’s account? Also in order for him not to pay the gift tax we were thinking that we could do it between 2 family members, can we do that? Your help is appreciated.

  20. 20
    priscilla Says:

    we are about to close on a house, the lender requires a gift letter + the donor’s account statement. We can provide them with the gift letter but our donor doesnt want to give away her bank account statement, can this affect our loan? we have the funds in our account already. please help?

  21. 21
    yari Says:

    my husband and i are currently in the process of buying a second home,our current home is listed for sale and at the same time we are buying the new one,it’s very stressfull because we really wanted to sell our current home before purchasing the new one but since we were worried of someone purchasing and us ending up homeless we ended up between two mortgages at the same time, now if we dont sell our current home we will soon be obligated to rent it…as for the second home it’s in underwriting and now they want proof of money that we deposited in to our acc which was a gift from our family to us…our hearts is in our current home but the violence has gotten so bad that we decided to sell and buy somewhere else for the safety of our children and us.

  22. 22
    justin Says:

    You do realize that: “making it ‘officially’ a gift in the eyes of the underwriter, but unofficially an under-the-table loan amongst family members” constitutes mortgage fraud, right?

  23. 23
    Tracy Says:

    Does the underwriter need to see a statement of the account that the gift is coming out of for a down payment? What if the gift is in cash? Can I still do a gift letter?

  24. 24
    john Says:

    my closing is in two days, now the bank tells me thati cannot get a gift from anyone and that it has to be my own money to use to close and it all has to be documented with proof of where it came from. so i cant go and sell my car and use it for my closing cost because i have no proof. what can i do to stop this.

  25. 25
    bahlbi Says:

    hi genni?how u there now?

  26. 26
    Paul Says:

    I lent the father of my daughter’s baby money to purchase a house so that he could move closer to them and participate in the child’s upbringing. They are not married and do not live together. I have a lien on the house and am receiving monthly amortization payments, but my daughter could use this money more than I need it. Can I transfer a portion of the lien to my daughter each year, not to exceed $13,000 annually, until it equals the total due, and then transfer title of the lien to her? Or will I run into gift tax problems?

  27. 27
    walden Says:

    Oh my god I’m so screwed. We found a house of our dreams and my wife is 5 months pregnant and she already picked everything as far as colors for the room of the baby and everything else…We have been saving up money religiously to buy a house and I even sold some property that i owned overseas to some guy who was paying me little by little over 2 years until he finished with the payment then I signed the deed over to him and I brought whatever cash money he gave me (not exceeding $7K every-time)and of course we saved that money in the house as we did not trust our selves with the money being in the bank then we’ll just spend it. Now, when time came and decided that this the house we want, I went ahead and deposited about $50K in cash in the bank thinking that everything is cool and dandy. To our shock, the loan officer comes back and hits with this notion that I need a paper trail for the money ( I have no paper trail, no checks, money wires, no nothing). Then he suggests that I get a written letter for a gift from a family member that do actually have that kind of money in the bank which none of my family do. I am lost and confused and about to just give up. Oh and on top of this we have good credit and been working for same company more than 6 years, and guess what no debt( I mean $ 0 debt, all of the credit cards are paid off).
    If any one has any inputs please help.

  28. 28
    RICHARD Says:

    Does a gift letter have to be signed off by a notary?

  29. 29
    Betty Jean Body Says:

    I really didn’t see an answer to my question. We are gifting my daughter and son-in-law 10 thousand for a down payment. The mortgage lender wants us to disclose our bank and account number. The check has already been deposited and just needs 5 days to clear. Does the mortgage company have the right to demand this information?

  30. 30
    ecannon Says:

    Hi Betty, most of the articles (such as this one http://themortgagereports.com/.....om-family) we’ve read do not mention the gift-giver having to reveal bank information to the lender.

  31. 31
    Ana Says:

    I’m planning of gifting and shipping outside the borders a 2012 car, to my sister. I was told that I need to send a gift letter with the vehicle. When I do my taxes next year, would I get a tax break or do I have to pay because the car is worth at least 18K. Can Someone Help??

  32. 32
    van Says:

    I am giving a relative the sum of 600.00 per month to help with his mortgage however CitMortgage asked for my bank statement and they have to run my credit. They demand that I write her a letter stating I give her permission to run my credit. That is bull.

  33. 33
    Kathy's Says:

    Why do I have to show proof to my sister’s mortgager that I am gifting her with half of her downpayment?

  34. 34
    Tonya Says:

    My boyfriend and I are buying our 2nd home together. I bought the first one, so he is buying the 2nd. We aren’t married, but have been together for 8+yrs and have lived together for 6. My parents are gifting us some money for the down payment. The problem is who do my parents gift the money to? I’m not buying the home and Justin isn’t considered family since we’re not married. I was told that it could bring up some red flags to the lender if they gift it to him. The Lender may wonder why my parents would be gifting him money. This seems odd to me. Why would there be a problem with my family gifting money to my boyfriend. expecially when we have been together for so long. Anyone have an answer to our dilemma?

  35. 35
    Mary Says:

    My brother bought a house in a short sale last year however he doesn’t want to have anymore financial responsibilities of a payment. My daughter wants to buy my brothers house. He purchased it for $300,000. My broker said becaused they are related he can sale the house for $325,000 and do the gift of eqity to my daughter as a down payment. Can this be done and is it legal? Please respond ASAP
    Thank you

  36. 36
    Mary Says:

    I still haven’t received a response to my question. Can you please respond? Thank you

  37. 37
    mona Says:

    I have a question my father is selling his house to me for 243,000.00..There is $80,000 equity in the house..I know he could do gift letter it to me..Can I get tax from it or my father?

  38. 38
    Michelle Says:

    Question:

    My mother in law gave my husband 110,000.000 for a down payment on our first home. She was going to live with us until she started acting crazy during the building process. She kept asking to be on the title and we told her NO way! She soon gave up on wanting to be on the title but still wanted to “gift” us the money. Our lender required a gift letter and she signed it. The day my hubby and I signed at the title company, she changed her mind and wanted to be on title… now she wants her money back but we are in the house and she refuses to move in. She wants to sue us for the money back. can she? we have a gift letter.

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