When buying a home, receiving gift funds for your down payment from a family member or close friend can be a significant help. However, mortgage lenders need to ensure these funds are genuinely a gift, not a loan in disguise. This is where a Mortgage Gift Letter Template becomes essential. Lenders require this document to verify the source of your funds and ensure you aren’t taking on hidden debt that could affect your ability to repay the mortgage.
Why Lenders Need a Mortgage Gift Letter
Mortgage lenders meticulously assess your debt-to-income ratio to determine your loan eligibility and terms. If part of your down payment is actually a loan, it increases your overall debt burden. This undisclosed debt can mislead the lender about your true financial situation and risk profile. Consequently, what was initially considered a manageable loan might become too risky for the lender. To avoid this scenario and maintain transparency, lenders require a formal gift letter to document any gift funds being used for your home purchase. This letter assures them that the money is indeed a gift, with no expectation of repayment, and won’t add to your debt obligations.
Key Components of a Mortgage Gift Letter Template
A comprehensive mortgage gift letter template should include specific details to satisfy lender requirements. Here are the essential components:
- Date: The date the letter is written. This establishes a timeline for the gift documentation.
- Lender Information: Clearly state the name and address of your mortgage lender. This directs the letter to the correct recipient and ensures it’s properly filed with your loan application.
- Donor Information: Include the full name, address, phone number, and email address of the gift giver(s). This provides contact information for verification purposes if needed.
- Recipient Information: State the full name(s) of the gift recipient(s) – the homebuyer(s). This clearly identifies who is receiving the gift funds.
- Gift Amount: Specify the exact dollar amount of the gift. Clarity in the amount prevents any ambiguity.
- Relationship to Recipient: Clearly state the relationship between the donor and the recipient (e.g., parent, grandparent, friend). Lenders want to understand the nature of the gift.
- Property Address: If known, include the address of the property being purchased. This connects the gift letter to the specific real estate transaction.
- Gift Statement: A crucial part of the letter is a clear statement affirming that the funds are a genuine gift with no expectation of repayment. It should explicitly state that no repayment is expected, either in cash or services, and no lien will be placed on the property by the donor.
- Source of Funds: Disclose the source of the gift funds. This could be savings, investments, or other accounts. Lenders need to verify that the funds are legitimate and legally obtained.
- Donor Signature: The letter must be signed and dated by the donor(s) to be legally valid.
- Printed Name of Donor(s): Include the printed or typed name of the donor(s) for clarity alongside the signature.
Downloadable Mortgage Gift Letter Template
To simplify the process, here’s a sample mortgage gift letter template you can use. Remember to customize it with your specific information and always confirm with your lender if they have any specific requirements.
Date: [Date]
To: [Name and address of bank or lender]
I/We [Name of gift-giver(s)] intend to make a GIFT of $ [Dollar amount of gift] to [Name(s) of recipient(s)], my/our [Relationship, such as son or daughter], to be applied toward the purchase of property located at: [Address of the house you're buying, if known].
There is no repayment expected or implied in this gift, either in the form of cash or by future services, and no lien will be filed by me/us against the property.
The SOURCE of this GIFT is: [Describe the investment, bank, or other account the gift is coming from].
Signature of Donor(s): _____________________________
Print or Type Name of Donor(s):
Address of Donor(s): Street, City, State, Zip:
Telephone Number(s) of Donor(s):
Email Address of Donor(s):Gift Tax Considerations
It’s also important to be aware of potential gift tax implications. In the U.S., the IRS sets an annual gift tax exclusion. For example, in 2024, this exclusion is $18,000 per person per recipient. This means an individual can gift up to $18,000 to another person without needing to report it to the IRS. Couples can combine their annual exclusion, effectively gifting $36,000 per recipient. For gifts exceeding this annual exclusion, the donor might need to file a gift tax return (IRS Form 709). However, it’s important to note that gift tax is typically assessed against the donor’s lifetime estate and doesn’t usually result in taxes during their lifetime, especially with the high lifetime gift and estate tax exemption. Consult with a tax advisor for personalized advice regarding gift tax rules and your specific situation.
Using a mortgage gift letter template correctly is a crucial step in securing your home loan when receiving gift funds for your down payment. Ensure all details are accurate, and always verify specific lender requirements to facilitate a smooth home buying process.
