How to Write a Gift Letter for a Mortgage
To qualify for a mortgage, you often need to have some form of a down payment. Getting the money together for this, however, can be quite a challenging task.
To help bridge the gap between what they already have put aside and what they need for their down payment, it is not uncommon for many new homebuyers to reach out to friends and family for some help. Getting some assistance with additional funds may be all that is needed for their loan to go through.
If this is the way you have accumulated your down payment, don’t be surprised if you are required to submit documentation showing that your friends and family gave you money out of the kindness of their hearts – as a gift.
Here’s how to write a gift letter for a mortgage.
What is a Gift Letter for a Mortgage?
As long as you have money for your down payment, it shouldn’t matter where the money comes from, should it? After all, a quick look at your bank account will prove that you have the funds to cover it.
For lenders, it matters where the money came from and the terms surrounding it. So much so that when you apply for a loan, the lender will diligently review every aspect of your submitted financial documents. They are looking to see if you have enough money to cover the down payment and if you make enough to cover the monthly mortgage payments.
If they see that you didn’t have enough money for your down payment – and then one day you miraculously did – they are going to question where it came from. Did you take another loan that you will have to repay? Did you get a loan from a friend? Are there circumstances surrounding that money that could inhibit your ability to pay your monthly mortgage amounts? Did you receive these funds from a legit source – and not fraudulently?
To get the answers they are seeking, lenders will require a letter from the person who gave you those funds. Known as a gift letter, this will need to be a statement advising that the funds were a gift to the loan applicant – and they do not expect to be repaid.
What Funds Must Be Included in a Gift Letter?
Whether or not you intend to use the large lump sums of money you have received from someone as part of your down payment, if your lender asks for a gift letter, you need to supply it. Will they know about the funds you received 4 months ago when they only asked for two months’ worth of bank statements? Not likely. Do you need to supply a gift letter for funds they aren’t questioning? No.
To save yourself some trouble, you can always just wait for 60 days to pass before moving forward with your mortgage application. That way your gift money will not be included in the 60 days of financials the lender is likely to monitor. Otherwise, it’s important to know how to write a gift letter.
How to Write a Gift Letter for a Mortgage
When writing a gift letter for a mortgage, you will need to include a few pieces of information, including:
The amount of the gift
The dollar amount stated needs to match the amount of the gift that was deposited into your account.
When the gift funds were delivered
The letter will need to state when the gift funds were (or will be) delivered.
A statement that it does not require repayment
The gifter will have to sign a statement that it was a gift and that it does not need to be repaid.
Stated purpose
The gifter will need to write a statement that the funds are to be used for the new property, specifically stating the address of the new property.
Relationship of the gifter to the borrower
This relationship will need to be stated and it may impact whether you can proceed.
Personal information about the gifter
The underwriter will be reviewing where this gift money came from to make sure it is from someone with no interest in the property. For instance, they want to confirm that a realtor or loan officer didn’t pay you the money. They may request personal information such as a banking name and account number. Not providing this information could be a deal breaker.
Signatures of both parties
Finally, this gift letter will need to be signed by both parties – the one giving the money and the one receiving it. This will make it a legally binding document.
Specific Mortgage Guidelines
It is worth noting that not every lender is going to require a gift letter. And not every lender is going to question the who, what, when, and why of deposits into your bank account. Some don’t even require a down payment at all. Yet, others only allow that money to come from certain people. And some require you to use a percentage of your own money as a down payment along with the gift money.
The best thing you can do is be prepared for lenders to look through your financials, know the guidelines surrounding gift money, and be able to prove where it came from with your gift letter.
Here are a few examples:
- Conventional loans, like those from Fannie Mae and Freddie Mac, require the gift money to come from a family member.
- FHA loans allow gift funds to come from certain family members and even employers.
- VA loans and USDA loans don’t really have any restrictions on who can supply you with gift money.
Keep in mind that guidelines can change at any time. It is always a good idea to have a mortgage broker on your side throughout the application process. You can explain your situation – and the experienced team will be able to guide you to the mortgage that will fit your needs and circumstances.
Learn More at Option Funding
You have mortgage options and Ahmad Azizi of Option Funding, Inc., will be the first to let you know. If you received gift funds, he and his experienced team will be able to guide you to those lenders that will accept your gift letter.
Ready to get started? Contact Ahmad today!
