A gift letter is a written statement confirming that money given to you for your down payment is a gift, not a loan. Lenders require this to ensure you are not taking on additional hidden debt.
The letter must state the gift amount, the donor's relationship to you, the property address, and confirm no repayment is expected. The donor can be a family member, fiancé, domestic partner, or in some cases a close friend or employer.
Proper documentation is critical. An improperly documented gift can derail your loan.
Why Lenders Require Gift Letters
Lenders need to verify that your down payment money is either your own savings or a genuine gift. If it is a loan, it adds to your debt-to-income ratio and could disqualify you. The gift letter removes the ambiguity.
What the Gift Letter Must Include
- Donor's full name and contact information
- Your name (the borrower)
- The dollar amount of the gift
- The property address being purchased
- The donor's relationship to you
- A statement that no repayment is required or expected
- Donor's signature and date
Who Can Give You a Gift
- FHA: family member, employer, labor union, government agency, or charitable organization.
- Conventional: family member, fiancé, domestic partner.
- VA: family member.
- USDA: family member or close friend with documented interest.
The definition of "family" varies by program.
How to Document the Gift Properly
- Get the signed gift letter
- Show the donor's bank statement showing the funds
- Show a receipt or transfer showing the money moving to your account
- Show your bank statement showing the deposited funds
- Show the check or wire confirmation for the down payment at closing
Common Gift Letter Mistakes
- Using the word "loan" anywhere in the letter
- Not specifying the property address
- Missing the donor's signature
- Not showing the paper trail of funds moving between accounts
- Having the gift come from someone who isn't an eligible donor for your loan type