What Is a Gift Letter for a Mortgage?

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 letter documentation requirements

Using gift funds for a mortgage requires clear documentation to show the money is a true gift, not a loan. Lenders want to ensure borrowers can repay the mortgage without relying on funds that might need to be repaid later. Proper paperwork also helps avoid delays during underwriting.

Here are the most common documents lenders request:

• Gift letter: A signed statement from the donor confirming the amount, relationship to the borrower, property address, and that repayment is not expected. This is the cornerstone document for most mortgage programs.
• Donor bank statements: Lenders often require statements showing the donor had sufficient funds before the transfer. This verifies the gift came from an acceptable source.
• Proof of transfer: Evidence that the funds were actually moved to the borrower or escrow, such as a wire transfer receipt, canceled check, or deposit confirmation.
• Borrower bank statements: Sometimes required to trace the deposit and confirm the gifted amount matches what was reported in the gift letter.
• Donor affidavit (if needed): In certain loan programs, an additional affidavit may be required to further confirm donor eligibility and gift intent, especially for non-family gifts.

Requirements can vary depending on the loan type and even by lender or state. Always check with your mortgage lender early to confirm which documents are needed for your specific situation, and gather everything ahead of time to ensure a smooth approval process.

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.

Who can give a gift for a mortgage?

Not everyone is allowed to give a gift for a mortgage, and donor eligibility matters because lenders want to be sure the money isn’t a hidden loan that could affect your ability to repay the mortgage. In most cases, acceptable gift donors are people with a close, documented relationship to the buyer.

For conventional loans, gifts typically must come from immediate family members, such as parents, grandparents, siblings, children or in-laws. Some lenders may also allow gifts from domestic partners or fiancés, but documentation is usually required. FHA loans are more flexible, allowing gifts from extended family, close friends, employers, labor unions or approved charitable organizations. VA and USDA loans often follow similar rules, permitting gifts from family members and certain approved sources.

Gifts from interested parties, such as the home seller, real estate agent, or builder, are generally not allowed, since they could influence the transaction. Because rules vary by loan type and lender, borrowers should confirm donor eligibility early to avoid delays or last-minute issues during underwriting.

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.

Tax implications of mortgage gifts

Gift letter requirements can vary depending on where you’re buying a home. In the U.S., most lenders follow federal guidelines from agencies like Fannie Mae, Freddie Mac and the FHA, but state laws and lender policies can still affect what documentation is required. Outside the U.S., rules may differ even more, including how gifted funds are taxed or verified.

Keep these differences in mind:

• State and lender variations: Some lenders require extra forms, bank statements or longer paper trails for gifted funds.
• International purchases: Other countries may treat gifted money as taxable income or require proof the funds don’t need to be repaid.

Because requirements aren’t universal, buyers should confirm local rules early. Speaking with a mortgage lender, real estate attorney or tax professional can help you avoid delays or surprises during the loan process.

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.