What is a gift letter for a mortgage?

Inform your lender if someone is gifting you all or part of your down payment

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When purchasing a home, one of the critical pieces of information is the amount of a down payment you’re providing. For some potential homebuyers, the down payment funding comes from the sale of their current property. Other borrowers — particularly first-time homebuyers — may receive the funds through generous gifts from their parents, grandparents or others. It may even be a combination of these two scenarios.

Potential homebuyers should know, however, if they receive any funds as a gift, the lender needs a gift letter stating the source of funds.


Key insights

  • A lender requires a gift letter to show proof a gifted amount doesn’t need repayment.
  • The donor provides the gift letter. The donor and recipient sign it and give it to the lender.
  • Each type of loan (conventional, Federal Housing Administration, U.S. Department of Agriculture and others) has its own unique requirements for acceptable sources of funds.
  • Your lender may prefer a specific template, or you may choose your own as long as it contains the necessary information.

Understanding gift letters

A gift letter is simply a letter stating that the money you receive from a family member or friend is a gift and not a loan. The letter gives the source of the funds and the property it applies to. Both the donor and recipient sign the letter, which is a legal document.

Lenders need to see a gift letter so they know the borrower is not under any additional obligation to pay back the gift, since more debt and a repayment could potentially put a monthly mortgage payment at risk.

“Gift funds need to be well documented,” said Kristen Conti, broker-owner of Peacock Premier Properties, a real estate company. “I have seen many deals go sideways because of ‘mattress’ money or goods sold from family members with no receipts or values that don't line up with the item's worth.”

Gift rules for mortgages

Using gifted funds for a mortgage may seem straightforward, but there are guidelines and rules in place for the various types of mortgages.

Conventional loans
A conforming loan is a loan backed by the Fannie Mae and Freddie Mac corporations, and these are the most common types of mortgages (often referred to as conventional mortgages). You can use gift funds for a down payment if it comes from a relative by blood or marriage, adoption or guardianship. Nonrelative donations allowed include those from a domestic partner, someone you’re engaged to, a former relative or a godparent.

Furthermore, you can use a down payment that’s fully gifted as long as it meets the primary residence or second home guidelines set by Fannie Mae and Freddie Mac.

FHA loans
FHA loans require a minimum of a 3.5% down payment, and borrowers can use gifted funds as a source as long as the documentation clearly states there’s no requirement to repay the funds. FHA loans allow gift funds from:
  • Relatives
  • Employer or credit union
  • A close friend
  • A charitable organization
  • Down payment assistance programs
USDA loans
Loans through the USDA don’t require a down payment as long as it meets the borrower guidelines. However, you can use gift funds towards other loan costs if the funds are not provided by anyone with a vested interest in the sale of the property (such as a real estate agent) and you provide a gift letter.

» MORE: Best USDA Lenders

VA loans
Mortgages through the Department of Veterans Affairs (VA) don’t require a down payment. However, you can use gifted funds for closing costs or to make a down payment. Like conventional, FHA and USDA loans, lenders require a gift letter to verify sourcing.

Timing is another consideration with the funds since it’s often unclear how far back you need to document any large financial gifts. “Doing this [receiving a financial gift] 90 days before purchasing takes a lot of pressure off as the funds need to be seasoned in the borrower's account for 60 days to have the most streamline process,” Conti further explained.

» MORE: Best VA Loan Lenders

How to write a gift letter

There are variations among the specific loan types, but most gift letters require the same information. The first step when writing a gift letter is to verify with your lender if there’s a specific template to use or if the donor is free to create their own letter.

Gift letters should contain the following information:

  • The actual dollar amount or maximum amount of the gift
  • A statement from the donor that there’s no repayment requirement
  • The donor’s name, address, telephone number and relationship to the borrower
  • The donor and borrower’s signatures

Sample gift letter template

Here is an example of what a gift letter might look like. Keep in mind this is for informational purposes only and guidance, and not actual legal advice. If you have specific questions regarding the information in the letter, it’s best to consult with your lender.

Dear Loan Officer,

I [DONOR NAME], hereby certify that on [DATE], I gave a gift of $[AMOUNT] to [RECIPIENT NAME], my [RELATIONSHIP (Example: "parent," "godparent," etc.]. This gift is to be used towards the purchase of the property located at [PROPERTY ADDRESS]. This gift is not a loan. No repayment is expected, nor would repayment be accepted.

[BANK NAME]
[TYPE OF ACCOUNT]
[ACCOUNT NAME]

[DONOR'S NAME]
[DONOR'S FULL ADDRESS]
[DONOR'S TELEPHONE NUMBER]

By signing this document, I/we verify the funds given to the homebuyer were not provided by any person, business or entity with an interest in the property or who is connected to the transaction. Both the donor and recipient agree there will be no repayment.

[DONOR'S PRINTED NAME]
[DONOR'S SIGNATURE AND DATE]

[RECIPIENT'S PRINTED NAME]
[RECIPIENT'S SIGNATURE AND DATE]

Gift letter vs. gift of equity letter

Another option for down payment assistance from a relative is a gift of equity. This is when someone in your family sells you their home for less than the market value, immediately giving the buyer more equity.

Equity is the difference between the home’s market value (what it sells for) and the amount owed on the property. For example, if a home sells for $400,000 but there’s $300,000 remaining on the mortgage loan, then the equity is $100,000.

In this scenario, if a relative is gifting equity, they must provide a letter to the lender. Similar to a gift letter, the gift of equity letter has to outline the relationship between the donor and recipient, plus the property address and a statement that there is no requirement for repayment.

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    FAQ

    How much money can you receive as a gift?

    There’s no limit to how much money you can receive as a gift. However, there are rules regarding who can give you the funds and what type of property the funding is used for. Each type of mortgage has various rules regarding gifting, so reviewing these rules with the lender before applying for a mortgage is important.

    How does a gift for a mortgage affect your taxes?

    The person receiving the gift for a mortgage isn’t liable for any taxes for the gifted amount. However, the person giving the gift may owe taxes if the amount falls outside the gifting limit set by the IRS. In 2023, an individual can gift up to $17,000 without triggering a gift tax.

    Can you put multiple gifts toward a down payment?

    Yes, you can put multiple gifts toward a down payment, as long as each source of the funds falls within the guidelines set by the different loan types (conventional, FHA, USDA, VA and others). Each source needs a gift letter provided to the lender.

    Bottom line

    One of the biggest hurdles to buying a home is coming up with the funds for a down payment, yet many overcome this obstacle with gifted funds provided by generous family members, friends or others.

    It’s important to remain transparent to the lender about the source of the funds, and a gift letter for a mortgage is the proper way to go about it. This lets the lender know the funds are truly a gift and there’s no repayment requirement by the borrower now or in the future.


    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Fannie Mae, “ Single Family Selling Guide .” Accessed June 4, 2023.
    2. Department of Veterans Affairs, “ Chapter 4 Credit Underwriting .” Accessed June 4, 2023.
    3. IRS, “ Instructions to Form 709 (2022) .” Accessed June 4, 2023.
    4. IRS, “ What’s New - Estate and Gift Tax .” Accessed June 4, 2023.
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