A gift letter is a signed document from the person giving you money for a down payment that confirms the funds are a gift — not a loan — and do not need to be repaid. Mortgage lenders require gift letters because borrowed down payment funds change your debt-to-income ratio and risk profile.
Down payment gifts are a common way families help first-time buyers enter homeownership. But lenders can't simply take your word that money is a gift — if it's actually a loan, it would appear in your DTI and change your risk profile. A gift letter is the lender's mechanism to document that the money doesn't need to be repaid.
Gift donor rules vary by loan type. For conventional loans, Fannie Mae allows gifts from a relative or domestic partner. FHA allows gifts from family members, employers, charitable organizations, or government agencies — but not from the seller or any party with an interest in the transaction. VA loans also have specific gift allowances. Confirm the rules with your lender before counting on gift funds.
A signed gift letter is usually not enough by itself. Lenders typically also require a bank statement from the donor showing the funds were in the donor's account, and documentation of the transfer (a wire confirmation or bank statement showing the deposit). The CFPB's mortgage process guide includes what to expect in the documentation stage.
From a tax perspective, the annual gift tax exclusion is $18,000 per donor per recipient in 2024 (indexed annually). Gifts above that amount require the donor to file IRS Form 709, though the actual gift tax is only owed if the donor has exhausted their lifetime exemption. Most mortgage gifts are well within exclusion limits, but the donor — not the borrower — bears any gift tax reporting obligation. See IRS Publication 559 for details.
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