If you are planning to purchase a home in the near future and need money from a family member to help cover the down payment, you may need to write a gift letter. Money gifts for mortgage down payments are very common; however, having a letter that documents the gift for your lender is essential. The letter must be written by the person that is giving the money, and not by the person who is purchasing the home. Gift letters do not have to be extensive, but need to include the following information:
• The giver’s name, address, phone number and relationship to the buyer
• The exact amount of money being given
• The actual date of the gift
• Signature of gift donor
• A statement that verifies the giver does not expect any type of repayment
The last item is the most important element of the gift letter. This is so the lender knows that the money is an actual gift, and will not be added to your total debt. If the money is a loan and the family member plans to get paid back, then this will affect your debt-to-income ratio.
Crafting the gift letter is actually fairly straightforward, and there are sample gift letters available to base your letter off of. You can ask your lender if they have a sample gift letter in their preferred format, or just craft a generic one, such as the example below.
May 22, 2015
To whom it may concern,
I am providing (borrower’s name), my (relationship), with a gift of (amount of the gift) toward the purchase of their home. I do not require or expect repayment for this gift. If you need to contact me in regard to this contribution, please use the information below.
(Giver’s address and phone number)
A short letter like this sample gift letter will cover all of the requirements your lender needs. The lender will also verify that the funds that were gifted are actually in your account. This is to ensure you can access the money for the mortgage down payment. In most cases, your bank statement will be sufficient.
For more information about the home buying process and things you should prepare before meeting with a mortgage lender, download our First Time Home Buyer Education eBook!