Gift Letters for Mortgage: Navigating Down Payment Gifts
Gift letters for mortgages can be used for down-payment assistance. Learn about the requirements for this borrowing option and how to navigate the process.
Gift Letters for Mortgage: Navigating Down Payment Gifts
When it comes to purchasing a home, there are usually significant up-front costs associated with a down payment. While there are plenty of loan, state and other programs that offer assistance, many prospective borrowers turn to family and friends to help with the down payment. Often times, these are referred to as “gifts.”
But in order for a mortgage lender to accept and count the funds in the mortgage calculations, they must generally be accompanied by a gift letter. So the question becomes: what is a gift letter for mortgage and what do you need to do to get one?
What is a Gift Letter for Mortgage?
A gift letter for mortgage is a statement from the donor explaining that the money is a gift, not a loan, and that the donor does not expect repayment. Because the transaction involves a large sum of money, the gift letter also serves as proof to the lender when assessing the loan application. As a result, gift letters for mortgage must include certain details.
The Basics of a Gift Letter for Mortgage
Just like with any letter, a gift letter for mortgage should include the date it was written, the name and address of the donor, the donor's relationship to the borrower, the amount of the gift, and any conditions or expectations regarding repayment. The letter should also specifically state that the money is a gift, not a loan.
Some lenders also require additional items to be included, such as a bank statement or canceled check from the donor showing the gift funds have been deposited into the borrower's account. The lender may also ask that the donor and borrower sign and date the letter.
Given the large sum of money involved, lenders may also request additional documents to prove that the donor has the funds to legally donate the money to the borrower. This includes copies of the donor's most recent tax return and bank statement, proof of employment, or other evidence of funds.
It's important to note that lenders may have different requirements and it is best to check with the mortgage lender before starting the process of obtaining a gift letter for mortgage.
Conclusion
Gift letters for mortgage are an important part of the loan process. By understanding what needs to go into them, borrowers and donors can make sure that their paperwork is accurate and their loan application goes more smoothly.