Gift Letter for Mortgage

Yes. A gift of equity occurs when a family member sells you their home for less than market value. The difference between the sale price and the actual value counts as the “gift.” This is a popular shortcut in the homebuying process for family transfers, as it can cover the entire down payment without any cash changing hands.

In 2026, the IRS allows an annual gift tax exclusion of $19,000 per person. If a parent gives you more than that, they must file IRS Form 709. However, they likely won’t owe taxes unless they have exceeded their lifetime gift tax exemption (which is currently $15 million). You, the recipient, generally do not pay taxes on the gift.

The letter is just the first step. Lenders usually require:

• Proof of Transfer: A copy of the check or a wire transfer receipt.

• Proof of Withdrawal: A bank statement from the donor showing the funds leaving their account.

• Proof of Deposit: Your bank statement showing the funds arriving in your account.

If the gift money sits in your bank account for more than two full statement cycles (usually 60 days), it is considered “seasoned.” At this point, the money is often viewed as your own asset, and a gift letter may not be required. However, if the deposit is recent, the lender will definitely flag it during the homebuying process.

Yes, the rules shift depending on your mortgage program:

• Conventional: If you put down less than 20% on a second home or multi-unit property, you may be required to contribute at least 5% of your own funds before using gifts.

• FHA: The entire 3.5% down payment can be a gift.

• VA/USDA: Since these often require $0 down, gifts are usually used to cover closing costs.

GIFT LETTER

Date: [Current Date] To: [Lender Name]

I, [Donor Name], hereby certify that I am making a gift of $[Amount] to my [Relationship, e.g., Son], [Borrower Name], to be applied toward the purchase of the property located at: [Property Address].

I certify that this is a bona fide gift and there is no expectation of repayment, either in the form of cash or future services. These funds are being provided from my [Account Type] at [Financial Institution]. No part of this gift is being provided by any third party with an interest in the sale of the subject property.

Donor Signature: ____________________ Donor Address: [Donor Street, City, State] Phone: [Donor Phone Number]

To satisfy a mortgage underwriter in 2026, the letter must contain:

• The donor’s name, address, and phone number.

• The donor’s relationship to the borrower.

• The exact dollar amount of the gift.

• A clear statement that “no repayment is expected or implied.”

• The address of the property being purchased.

• The date the funds were (or will be) transferred.

Donor eligibility depends on your loan type, but generally, lenders prefer “blood or law” relatives:

• Conventional Loans: Parents, grandparents, siblings, children, spouses, or domestic partners. Fannie Mae also allows gifts from godparents or former relatives.

• FHA Loans: More flexible; they allow gifts from family members, employers, labor unions, and even close friends with a documented interest in your life.

• Prohibited Donors: You cannot accept gift funds from anyone with a “vested interest” in the sale, such as the seller, the builder, or the real estate agent.

Lenders are required to verify the source of all funds used in the homebuying process. They need to ensure that the money isn’t a secret personal loan from a friend or family member. If it were a loan, it would increase your debt-to-income (DTI) ratio, which could negatively impact your ability to qualify for the mortgage.

A gift letter is a formal legal document that confirms a specific sum of money given to a homebuyer is a pure gift and not a disguised loan. It provides a transparent paper trail for the lender, stating clearly that the recipient is under no obligation to pay the money back at any point in the future.