Definition:
A gift letter is a written statement confirming that money given to a homebuyer—usually for a down payment—is a gift, not a loan, and does not need to be repaid.
Example:
Sophia’s parents give her $25,000 to help with the down payment on her first home. To satisfy her mortgage lender’s requirements, her parents sign a gift letter stating the money is a gift with no expectation of repayment.
Explanation:
In real estate, buyers often receive financial help from family members or friends to cover part of their down payment or closing costs. Lenders require a gift letter to make sure this money isn’t a loan, which could affect the buyer’s ability to repay the mortgage.
A typical gift letter includes:
- The donor’s name, contact information, and relationship to the buyer
- The amount of the gift
- A clear statement that the funds are a gift, not a loan
- The date the gift was given or will be given
- Signatures from both the donor and recipient
Some lenders may also ask for proof of the money being transferred, such as bank statements or wire confirmations.
Gift funds are commonly used with FHA loans, conventional loans, and other mortgage types—but each loan program has specific rules about who can give the gift and how much can be gifted.
Why is a Gift Letter Important in Real Estate Transactions?
Gift letters are important because they provide transparency in the mortgage process and help lenders accurately assess the borrower’s financial situation. For buyers, they make it possible to get extra financial help without delaying the loan approval process. For sellers, buyers with verified down payment funds backed by a gift letter are more likely to close successfully, reducing risk and delays.