Gift Letters For Mortgages: A Comprehensive Guide

23% of first-time homebuyers received assistance on the down payment on their home from relatives. The current median home sale price is $435,051. This coupled with the 20% down payment, the total cost comes up to $872,826. The huge number is where a gift letter for a mortgage comes into the picture.

When homebuyers receive gift funds for a down payment, mortgage lenders will require a gift letter to document it. So, apply for a pre-approval now and see how much you are eligible for.

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A gift letter for mortgage is a document that satisfies the requirement of a borrower’s down payment requirements. The donor signs a gift letter form which states that you are not obligated to pay the money back.

The gift letter format should at minimum include:

• The name of the giver along with their relation to them
• The amount was given as a gift fund.
• Source of the fund, including account number and statement.
• Purpose of the gifted funds.
• A statement indicates the borrower doesn’t have to repay the gifted funds.
• A statement stating that the giver doesn’t have any claim on the new home in the future.

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Loan programs allow for gift money for family members which includes parents, grandparents, siblings, spouses, and other significant members. A gift letter to children is the most common to help out kids who are starting out. However, some lenders permit gifts from non-relatives.

If a relative or friend thinks of gifting a down payment, you’ll be required a gift letter and bank statement. This will show the movement of funds between the giver and the recipient. Inform the lender that the money received is a gift and not a loan.

It is usually a good idea to get the funds 2 months before applying for the mortgage, so it is properly seasoned. You can also use funds received within 60 days, but you’ll need to submit more documentation.

A letter of gift mortgage may differ based on the loan programs that you are applying for.

• Conventional loan: If you are buying a single-family home, the down payment for gift letter home loan can be only done by family members. Your wedding or graduation gift can also qualify for a down payment. You can use them as long as you provide a copy of your diploma or marriage license.
• FHA loans: FHA loans require a minimum down payment of 3.5 percent. The full amount can be gifted by family members, close friends, employers, charitable organizations, and NGOs.
• VA loans: Mortgages guaranteed by the US Department of Veteran Affairs don’t require a down payment. However, they allow borrowers to put a gift fund to the down payment or closing.
• USDA loans: The US Department of Agriculture (USDA) doesn’t guarantee no-down payment mortgages for borrowers with a low or moderate income. The money received from a gift letter can be utilized to pay closing costs. A letter of gift for mortgage needs to be given with other supporting documents.

The rules for gift amount depend on the type of property which you are buying.

• Primary residence: A gift fund can be used to buy a primary residence you intend to live in. If you are buying this property, you can make the down payment entirely through gift funds.
• Second home: If you are able to put at least 20%, the gifted fund can cover your entire amount. If the down payment you put is less than 20%, you’ll need to at least put 5 percent from your own money.
• Investment property: You cannot use a gift fund to put a down payment on real estate.

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Mortgage underwriting allows the lender to access your financial health. A mortgage gift will have an impact on your debt-to-income ratio (DTI) and other perquisites. The more gift money you put as a down payment, the lower be interest rates. This will lower your DTI.

The underwriting process requires you to produce verified documents, like gift affidavits, account statements, and tax documents.

In the era of high median home prices and rent, a gift fund is great for young people to save on a down payment. A gift letter confirms the source of a down payment fund. Make sure you get the consent of the donor before sharing their details.

Are you ready to take the first step in your home-buying journey? Check out Be My Neighbor, and get access to the best loan deals and offers.

Yes, you can pay the entire down payment of your FHA loan through gifted funds. These funds should strictly come from family members, close friends or employers.

Yes, it is a legal paperwork for your down payment. The letter has to be signed by the donor confirming that the donor doesn’t expect anything in return for it.

A gift letter for mortgage needs to contain important details about the lender and their relation to you. This includes the gift amount, the full information about the receipts and the source of the funds.

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