Have you recently received a generous cash gift for your wedding? If you are planning to use said cash as a down payment on your dream home you will need something called a ‘gift letter for your mortgage’.
Let’s dive into the details
What is a Gift Letter?
A gift letter is a document that records the transfer of any monetary gift from one person to another.
This letter acts as a token of confirmation when an individual gives a financial gift to help someone. Such a letter can be given by parents to their kids or a donation to a charitable organization etc.
What is a Gift Letter for a Mortgage?
A gift letter for a mortgage is an important document for lenders. The lenders need the gift letter from the borrower in order to confirm the payment authentication done as their down payment.
A gift letter ensures that the borrower is not taking on additional loans to pay for his down payment or closing costs.
How to Write a Gift Letter for a Mortgage?
A gift letter is a transactional document hence it’s necessary to mention several details. These details could include:
- Name of the gift giver
- Amount of the gift
- Purpose of the gift
- Giver’s relationship to the borrower
- A statement that the amount is given as a gift and not as a loan.
Money Gift Letter Template
Use this ready template for a Money Gift letter:
[Donor’s Name]
[Donor’sYour Address with City, State ZIP Code]
[Date]
[Recipient’s Name]
[Recipient’s Address]
[City, State ZIP Code]
Dear [Recipient’s Name],
I am writing this letter to confirm that I am gifting you [amount of gift in number & in words] to be used toward the purchase of your new home. This amount is given as a gift with no expectation of repayment. I’m aware this gift will be used as the down payment and/or closing costs associated with the purchase of the property by the [Borrower’s Name]
I have included my bank statement showing the fund liquidity to give the amount as a gift. Let me know if you need any other additional documents.
If you have any questions about this gift money, please feel free to contact me.
Sincerely,
[Donor’s Name]
Can Someone Gift You Money to Buy a House?
Yes, someone can gift you money to buy a house. In fact, receiving a financial gift for a down payment or closing costs is a common way for first-time homebuyers to enter the housing market.
Mortgage Gifts And The Underwriting Process
Every mortgage gift involves an underwriting process to verify the exact source of the gift. In underwriting, the lender might ask you to produce certain documents like bank documents, tax certificates etc, to confirm the mortgage gift transaction.
Overall, the underwriting process ensures the borrower’s eligibility and the funds are appropriately recorded. Hence you should look out for a trusted lender who would process your mortgage easily and quickly.
Gift Letter Regulations By Loan Type
Gift letter regulations can vary by loan type. Here are some general guidelines:
Conventional loans
In conventional loans, the gift letter has to be signed by the giver and the borrower. This gift letter should include important points like the amount of the gift, the relationship between the giver and the borrower, and a letter that the funds are a gift and not a loan. The major conventional loan allows you to use gift money that comes from members of your family.
FHA loans
In FHA loans, the gift letter information remains the same as for conventional loans. The giver also needs to provide his bank statement showing the withdrawal of the gift funds and deposited into the borrower’s bank account. FHA loan approves the gift letter from a relative, close friend, or colleague.
USDA And VA Loans
In USDA and VA loans, the information remains the same as the conventional loans. The giver also needs to provide a letter from their bank showcasing their eligibility to provide a gift.
Irrespective of any loan the gift letter is required by the lender to authenticate the borrower’s fund.
Gift Letter Regulations By Property Type
There is a minor difference in the gift letter regulation in the property types:
i. Primary residence: In the transaction of primary residence, the gift letter must clearly state that the gift is not a loan.
ii. Investment/Second home property: In these transactions too the gift letter is required in order to show his fund movement. Here, the lender may require a larger down payment along with some additional documentation. For example, the lender may require the donor to provide documentation showing that the gift funds are from a non-business source.
Bottom Line
A gift letter for a mortgage is a way for the lender to verify the source of the down payment funds. It allows the lender to know that the borrower is eligible for the mortgage loan.
Frequently Asked Questions
Why do i need a gift letter for a mortgage?
You need a gift letter for a mortgage if you are using gift funds to pay for your down payment or against closing costs.
Who can gift money for mortgage down payment?
Your parents, friends, relatives, or colleagues literally anyone can gift money for mortgage payments.
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