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.
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:
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.
- 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.
The lender should have a gift letter that you can fill in. Most of them do not require you to state exactly what you are using those funds for. Typically people use them for a combination of down payment and closing costs. many banks require that you have some funds of your own in addition to the gift funds.
Does this actually lower the loan amount?
No it does not lower the loan amount unless the gift allows you to put more down on the home. The gift is down payment money or a combination of down payment and closing costs.
I'll make this quick.... Ex and I broke up, sold the house. In order to obtain our mortgage her mother gave us X amount if money and the three of us signed a gift letter. Now she wants to take me to court to get half of it back plus interest as she took the cash from her line of credit. She claims that a gift letter does not re-characterize the loan into a gift. Anyone know if there's any truth behind this? Am I screwed?
If all she has is the signed gift letter, then technically you do not owe her the money unless you signed a seperate document indicating that you WOULD repay her with interest.
This will all come down to your morals. Whether you believe you owe the money. If you got that money back after the sale of the home, then the right thing to do would be to return your portion to her.
This will all come down to your morals. Whether you believe you owe the money. If you got that money back after the sale of the home, then the right thing to do would be to return your portion to her.
the idea of "gift" is precisely that - money (or other goods) given for which no repayment is expected, or required. now, we all realize that in working with borrowers in the mortgage industry, there are some whose gifts are, in fact, loans; but masquerading as gifts so as to comply with specific guidelines that allow loans to be approved.
as eric noted, if a gift is proferred and the home is subsequently sold, especially in a case where there's a breakup in a relationship, one might feel a moral compulsion to repay the portion of the gift that came from the other partner's parent or family member. again, unless there is some sort of legal documentation that requires repayment of this "gift" then there'd be no legal need to repay it.
how you handle this is up to you.
as eric noted, if a gift is proferred and the home is subsequently sold, especially in a case where there's a breakup in a relationship, one might feel a moral compulsion to repay the portion of the gift that came from the other partner's parent or family member. again, unless there is some sort of legal documentation that requires repayment of this "gift" then there'd be no legal need to repay it.
how you handle this is up to you.
Although gift money can not be expected to be returned or implied, is there anything wrong with paying it back?
Welcome anonymous,
There is nothing wrong in paying back the gifted money. But if you pay it back, then it will not remain a gift anymore.
There is nothing wrong in paying back the gifted money. But if you pay it back, then it will not remain a gift anymore.
anonymous, i agree that there's nothing wrong with paying back a gift. often, i'm sure, people will realize an increase in their lives that allows them to repay what was truly a gift.
consider it a re-gifting. i think it's a lovely way to say thank you for the original gift. and, by the way, it would have no impact on your mortgage, as your repayment is (it sure seems to me) purely voluntary.
consider it a re-gifting. i think it's a lovely way to say thank you for the original gift. and, by the way, it would have no impact on your mortgage, as your repayment is (it sure seems to me) purely voluntary.
I am gifting some money to my brother for a house, I don't expect it back. My brother said that the lender is asking for proof of where the gift is coming from. I know this may sound weird but I currently have it in a safety deposit box and not in an actual account. How do I "prove: where I am coming up with the funds??
eric, although i understand your desire to have your money "safe" that's not a good way to document funds you are giving as a gift to someone buying a home. the lender wants to see that you had the funds in the first place, in order to provide the gift. i'd hope that you can find a way to provide them with some sort of verification of where your funds came from, but bank account verification is by far the best method.
So if I deposit this money into my personal account then just do a cashier's check or something??? Thanks fo rthe help.
We will be closing in a few weeks. Meanwhile some money is starting to come in from my Dad's estate from the sale of some of his household items. At this point in time if we put that $3,000 in our bank account do we have to prove were it came from?
Welcome,
To Eric,
Yes, you can deposit the money in your personal account and then issue a check to your brother.
To Kid,
I think you are planning to use the money coming from your father's estate as a down payment towards the mortgage. In that case, you will have to show a document to the lender in order to prove where it came from.
To Eric,
Yes, you can deposit the money in your personal account and then issue a check to your brother.
To Kid,
I think you are planning to use the money coming from your father's estate as a down payment towards the mortgage. In that case, you will have to show a document to the lender in order to prove where it came from.
Thanks Adonis!