Things To Know About A Mortgage Gift Letter
Are you looking to pay for your down payment (in whole or part) using gift money? You will surely need a gift letter from your donor to do this. We will delve deep into explaining everything about a mortgage gift letter.
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What Is a Mortgage Gift Letter?
Down payments are often the hard part. Not everybody can muster 20% of the purchase price, which you pay upfront. You cannot take a loan to pay for the down payment money.
It prompts the homebuyers to explore other options. They usually turn to family members, relatives, and friends (donors) who give them the down payment money as a gift.
National Association of Realtors reports
- About 27% of the homebuyers between 22 and 29
- About 20% of the homebuyers between 30 and 39
They arranged the down payment money from their relatives or friends as a gift.
In all such situations,
- Your mortgage lender wants you to get a gift letter from your donors.
- This mortgage gift letter fulfills their requirement and ensures you get funds from legal sources.
- Further, after receiving such a letter, your lender gets assured that you have taken no loan for the down payment money.
When you get funds for your down payment from a donor, such a donor is required to write and send a letter to your mortgage company, which is known as a mortgage gift letter.
This mortgage gift letter accompanies bank statements and other documentary evidence, such as Income Tax Returns, computations, and deposit/Transfer slips of the donor showing your donor are financially sound and can extend the gift amount.
What Is the Purpose of a Mortgage Gift Letter?
Neither you nor your donor can get a loan to pay the down payment. These funds must either be entirely yours or those of your donor.
Thus, primarily, mortgage lenders require your donor to send them a gift letter, wherein your donors will declare that:
- They have given the gift from their funds
- They have taken no loans
- They can extend such a gift
- The funds are not “loans.” These are “donations.”
- They have no intention or will to get the gifted money back
What Are the Ingredients of a Mortgage Gift Letter?
There is no set template or format for a mortgage gift letter. Its contents vary as per the different requirements of the lenders. Yet, after analyzing several mortgage gifts letters, we have singled out some of the common ingredients, which are listed:
| Common Ingredients of a Mortgage Gift Letter | Description |
| Who Is the Donor? | A mortgage gift letter must contain the complete details of your donor, such as: • His or her name • Address • Contact Number and • Social Insurance Number |
| From Where Did Your Donor Arrange for the Gift Money? | There should be a declaration in the letter that states the exact source of money from where a donor has arranged money. |
| What is Donor’s Relationship with You? | • A donor might be somebody from your blood relation, like your father, mother, or siblings. • On the other hand, they can be your friends and colleagues as well • You donor must mention with clarity how he or she is related to you |
| What Is the Amount Gifted? | • This is the most important ingredient of a mortgage gift letter • Your donor must mention the exact amount, which he or she has given to you as a gift • In some cases, the lenders also require you to mention the calculation using which you arrived at the gifted amount |
| What Is the Purpose of The Amount Given as a Gift? | • A clear statement, which states that the amount gifted will be used as proceeds towards the down payment • Further, it must be expressed that the recipient is not allowed to use the gifted money for any purpose other than for paying the down payment |
| Where Is the House-To-Be-Purchased Located? | • If an offer is already on the table, your donor must precisely state the location of your house property • This gives more clarity regarding the usage of gifted funds |
Can You Give an Example of a Mortgage Gift Letter?
Below is the most used template of the mortgage gift letter:
Date
Name, Address, and Phone Number of the Mortgage Company
Subject: Mortgage Gift Letter
Salutation
I, Emma Williams, am gifting a sum of $80,000 to Michael Williams, who is my son. I am giving him this amount so that he can use this money towards the down payment for the purchase of the property in Brampton, Greater Toronto Area.
These funds represent my savings. The funds are from my savings account (XXXXXX) in the Nova Scotia Bank.
I extend the gift of my free will and have no intention, purpose, or reason for this money to be returned, now or in the future.
Signature of the Donor
Name, Address, Social Insurance Number, and Phone Number of the Donor
