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Mortgage Gift Letter - What is it and how to write it?

Posted on: 08th Apr, 2004 11:37 pm
Mortgage Gift letter is what the donor of the gift writes to the lender stating that he has offered a gift of money to the home buyer.

Homebuyers often require extra funds to make their down payment or pay part/whole of their closing costs when there is shortage of cash to pay for these upfront costs. They can borrow from a non-profit organization but lenders often do not prefer borrowed money as the down payment. In this situation, cash gift from family members is very helpful.

When a gift is made available to a homebuyer applying for a mortgage, he needs to write a mortgage gift letter signed by the donor and attach it with the loan application form. At times, the lender may also provide the buyer with a Gift Letter form which the latter only needs to fill out.

However, if the gift is made by any non-family member such as friend, employer, etc, then a borrower needs to provide documentation of a very close and long lasting relationship.

How to write Mortgage Gift letter

A mortgage gift letter includes the following:
  • Name of donor of the gift
  • Name of the recipient
  • Relationship between the donor and recipient
  • Cash amount gifted
  • Address of the property for which gift is made
  • Source of the funds (bank account, brokerage account etc) as offered by the donor.

Apart from the above, the gift letter should also state that the buyer need not repay the gift amount. Also, the lender should be assured that the gift funds were not made available to the donor from any person involved with the sale of the property including the seller, broker, real estate agent, loan officer or builder etc.

With gift of money, a buyer can afford to purchase a bigger house. At the same time, he can borrow less and thus reduce his monthly payments. However, the homebuyer needs to provide a written statement and prove that the money he's putting down is a gift. Here's where a mortgage gift letter serves its purpose.
I want to know that if the price of the house is $320,000 and a gift letter is given for $40,000 does this lower the price of the initial loan? Or does the loan amount stay at $320,000
Posted on: 28th Jun, 2006 05:44 pm

Mortgage gift letter is a letter from a family member verifying that he/she has given the borrower a certain amount of money (for you $40,000) as a gift and there is no need to return it.

That can certainly bring down the loan amount as you can use that money towards a portion of your down payment through some mortgage products.

Posted on: 28th Jun, 2006 05:55 pm
On this gift letter, there is a line for a loan #. Would this be the loan number of my daughters loan. Thank you.
Posted on: 31st Jul, 2008 01:12 pm
Hi Charles.

Welcome to the forum.

Yes it should be the loan number of your daughter.
Posted on: 01st Aug, 2008 04:01 am
charles (and others): you'll likely never have to worry about the loan number. for one thing, those things often change; for another, most borrowers don't know the loan number early on in the process. lots of times, they're not given to a borrower until closing (and who's paying attention then?).

as for a $40K gift on a $320K purchase; that would allow a borrower to reduce the loan amount as low as $280K. an alternative is to use most of the gift money for down payment and the rest of it for closing costs. this, of course, would result in a higher loan amount than the $280K noted, but would alleviate the need to liquidate other funds to cover the closing.

the beauty of a gift is that it allows a borrower some flexibility in how funds are allocated.
Posted on: 13th Aug, 2008 08:02 am
Are there any tax implications? Do you have to pay any sort of gift tax?
Posted on: 19th Aug, 2008 07:06 pm
Hi Howard,

You may have to pay gift tax on the funds you receive as gift from any family member or anyone provided the gift amount doesn't exceed $12,000 and you don't qualify for the gift tax exemptions. It's always advisable to check this out with a CPA or financial advisor.

Hope this helps...

god bless you.

Posted on: 20th Aug, 2008 10:00 am
Does the person donor of the gift money has to provide a bank statement to the loan officer to show that the donor has the money to give?
Posted on: 22nd Nov, 2008 12:48 am
Hi ab!

The donor of the gift has to provide the lender with a bank statement to show that the donor has the ability to give the money.

Posted on: 22nd Nov, 2008 01:39 am
does the buyer need to tell the seller of the gift? Who needs to know about the gift? Is this between the buyer, giver of the gift and the buyers lender?
Posted on: 06th Jan, 2009 09:56 am
Hi Mike J

As far as I know, the buyer of the property will have to inform the lender about the gift letter. You may or may not inform the seller about the gift.

Posted on: 07th Jan, 2009 12:39 am
I have given $20000 for the downpayment of a house .I signed a gift letter with no terms or repayment required just to show the lender.The borrower didnt sign any document to pay me back but said as soon as his situation improves he will pay me the sum withou any interest. If he doesnt pay me will I have any way of getting my money back.
Posted on: 25th Jan, 2009 01:04 pm
Hi Angie,

As there is no agreement between you and the borrower, I don't think you have much chance of getting back the money if the borrower does not pay the money to you.

Posted on: 25th Jan, 2009 11:07 pm

To add insult to injury, you signed a document that says the money is a "Gift". As a result, you would have no leg to stand on in court. Your best bet is to reason with this person and use some other type of measures to get your money back.
Posted on: 30th Jan, 2009 04:59 pm
If we are being given $10,000 as a gift for our down payment, do we have to use all of the money on a down payment? On the gift letter, it asks how much money is given. What if we are able to make a smaller down payment and choose to use the rest for fixing things how would we write that on a gift letter?
Posted on: 08th Feb, 2009 05:46 pm
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