When you purchase your first home, there should be plenty of reason to celebrate, including housewarming events, neighborhood greetings, and Facebook “like-worthy” new home photos.
You might require a down payment to purchase a home once you’ve been pre-approved and are ready to do so. Excited family members and friends can gift money to help with your down payment. You can save thousands of dollars on your down payment and closing costs by using mortgage gifts.
Your donor will need to write a mortgage gift letter certifying their donation because your lender needs to know that it isn’t a loan.
What Is a Mortgage Gift Letter?
A signed letter from a donor attesting that their down payment gift money comes with no repayment expectations is known as a mortgage gift letter.
Getting financial support from friends and family to pay for home-buying expenses like the down payment and closing costs is quite common. Lenders want to make sure that this money isn’t a loan because taking on more debt could prevent you from getting a mortgage.
You can easily assure your lender that you are not obligated to repay friends and family for their gift money by using the mortgage gift letter.
How Do You Write a Gift Letter for a Mortgage?
The donor’s name, contact information, the amount of the gift, and other information about the house and gift must all be included in a mortgage gift letter. Although the donor has written and signed it, your mortgage lender may have a template you can use.
A mortgage gift letter must include:
Once the gift letter is finished, you can present your lender with supporting information. Notaries aren’t required.
Mortgage Gift Letter Template
It’s simple to write your own mortgage gift letter if your lender doesn’t provide one. Copy and customize our template below:
I/We, [DONOR NAMES], certify that our gift of $[GIFT AMOUNT] to [BUYER] is made without any expectation of repayment, whether express or implied. To: [Name/Address of Lender] Our donation of $[GIFT AMOUNT] will be used to purchase the following items: [HOUSE ADDRESS] Money Given By: Name: [DONOR NAME] Relationship To Buyer: [RELATIONSHIP] Phone: [PHONE NUMBER] Address: [DONOR ADDRESS] Money Received By: Name: [BUYER NAME] Phone: [PHONE NUMBER] Address: [DONOR ADDRESS] Source of Gift Funds: Bank: [BANK N
Once your offer is accepted and before you close on the house, ask donors for a mortgage gift letter when creating your timeline for buying a home.
The letter can be delivered to your lender for documentation once everyone has signed it.
Mortgage Gifts by Loan Type
Depending on the type of mortgage loan used to purchase a home, mortgage gift requirements may apply. Depending on who donates the money, gift money may be applied to a down payment for all single-family, primary residence purchases.
Conventional Loans and Mortgage Gifts
For first-time buyers, conventional loans are the most popular loan option, and they call for gift money donors to be related to the buyer.
Family members eligible to donate gift funds include:
No one else, including friends, may contribute to conventional loan mortgage gifts.
FHA Loans and Mortgage Gifts
More people than just family and friends can contribute money thanks to FHA loans. Donors may include:
Extended family, including cousins, nieces, and nephews, can’t contribute to FHA loan down payments.
USDA and VA Loans and Mortgage Gifts
USDA and VA loans are the most flexible with down payment gifts. These loans have no restrictions based on the relationship to the buyer.
However, donors can’t have an interest in the property’s sale. The seller, real estate agents, lender, and other parties involved in the transaction could all be considered prohibited donors.
You can choose to use mortgage gifts for closing costs instead of the down payment because both USDA and VA loans provide 100% mortgage financing.
Mortgage Gift Requirements by Property Type
If they have gift money, down payment assistance, or a low down payment mortgage, the majority of first-time home buyers don’t have to contribute personally to their down payment.
However, certain property types do have particular demands for your contributions:
If you’re purchasing your first home, you won’t need to worry about saving thousands of dollars for a down payment.
Mortgage Gift Letter FAQs
Here’s what you need to know about your mortgage gift letter in case you still have questions.
Do Buyers Pay Taxes on Mortgage Gifts?
Buyers don’t pay taxes on their mortgage gifts and don’t have to report gift monies to the IRS
If a donor gifts more than $16,000 to a single buyer in 2022, they’ll be responsible for reporting that donation to the IRS. Contact a tax advisor for more information.
What Is the Maximum Gift Amount for a Mortgage?
There is no cap on the amount of mortgage gifts you can receive or put toward your down payment. Donors are free to make any amount they choose, and additional funds may be used to cover closing costs.
The only donation cap in place at the moment establishes when a donor must inform the IRS of their gift but does not set a maximum amount. You can receive as much funding that’s available to you.
Does a Mortgage Gift Letter Need To Be Notarized?
No, a mortgage gift letter doesn’t need notarization. Specific information about the donor, buyer, and gift amount should be included in a mortgage gift letter, including:
The buyer’s bank statements can be used by the lender to confirm the gift amount details.
A mortgage gift is a kind way for family and friends to support you in buying your first house. You might be able to purchase a home with enough assistance without having to pay for the down payment or closing costs yourself.
In order to receive an accurate mortgage offer without lenders assuming a sizable amount of new funds is loan debt, you must have a mortgage gift letter certifying that gift funds have no repayment expectations.
To get all of your home buying questions answered, chat with us or sign up for our free home buyer course.
Get pre-approved for a mortgage today.
Former mortgage loan officer and subject matter expert Dan Green He has been featured in The Wall Street Journal, Bloomberg, dozens of regional newspapers, NPR, CNBC, and other publications. Dan has provided education on mortgages, real estate, and personal finance to millions of first-time homebuyers. Have mortgage questions? Ask Dan in the chat.
FAQ
What should be in a letter of mortgage gift?
The donor’s name, contact information, the amount of the gift, and other information about the house and gift must all be included in a mortgage gift letter. Although the donor has written and signed it, your mortgage lender may have a template you can use.
When you write a gift letter for a mortgage?
A gift letter certifies to your lender that the funds that arrived in your account are a gift, not a loan. The gift letter must be written by and signed by the person who gave you the money, along with their contact information.
How do you write a legal gift letter?
- The donor’s name.
- The donor’s address.
- The donor’s phone number.
- The donor’s relationship to you.
- The exact dollar amount of the gift.
- The date the gift was given.
- A full and detailed statement from the donor clearly stating that no repayment is necessary or anticipated
Does a mortgage gift letter get reported to the IRS?
According to the IRS gift tax exclusions for 2022, any down payment gift that is less than $16,000 does not need to be reported to the IRS. If the amount is higher, the donor’s gift tax return must be filled out.