What is a Gift Letter for a Mortgage?

Last Updated on 06/11/2017 by GS Staff

Q:

What is a gift letter for a mortgage?

A:

Some people have the benefit of receiving a gift when they obtain a mortgage. The gift comes from another individual willing to give the borrower assistance in securing a loan without expectation of repayment. Gifts are often classified into two categories: personal gifts and gifts of equity.

Personal Gifts

A personal gift typically comes in the form of a check from the gift donor to the person obtaining the mortgage (the borrower). The gift funds are used by the borrower to pay for the down payment, closing costs, or reserves that are required for a loan approval.

The lender will often request a gift letter signed by the donor, proof the gift funds were transferred to the borrower, and proof that the gift donor had the funds available to gift.

Gift Letter
The gift letter is a letter executed (signed) by the gift donor. For conventional (conforming) loans, the following information is required to appear on the gift letter according to the Fannie Mae selling guide:

  • Amount of the gift
  • A statement indicating no repayment is expected from the borrower
  • Donor’s name, address, telephone number, and relationship to the borrower
  • Indication that the funds were transferred to the borrower

Additional requirements for the gift letter are required for the use of pooled funds.

Proof of Transfer & Fund Availability
Proof that the gift funds were transferred to the borrower is also a requirement for conventional (conforming) loans. The documentation that the lender will potentially request is:

  • Copy of the donor’s check and the borrower’s deposit slip
  • Copy of the donor’s withdrawal slip and the borrower’s deposit slip
  • Copy of donor’s check to the closing agent, or
  • Settle statement showing receipt of the donor’s check

Gift of Equity

A gift of equity is when a person sells their home for less than current market value to another person. The difference between the sales prices of the home and the market value is the gift of equity.

A signed gift letter is required for conventional (conforming) loans just like personal gifts. The settlement statement must also reflect the equity gift.

Note that additional requirements than what was listed above may be required for gifts. Different types of loans have various documentation or donor relationship requirements.  Your lender or a mortgage professional will provide you with guidance regarding the gift requirements when you are in the process of qualifying for a mortgage.