A Gift Letter for a Mortgage Down Payment is a legal document written by the donor to provide proof that the funds provided for a mortgage down payment do not need to be repaid. For many potential home buyers, coming up with a mortgage down payment is a big hurdle to home ownership. A typical down payment can cost up to 20% of the home’s purchase price. Fortunately, most mortgage loans allow buyers to use gifts for all or part of the required down payment for a home.
Conventional, HUD, and VA mortgage loans require proof that the funds given to a home buyer for a down payment do not need to be repaid. If someone offers to give you money to help you with your mortgage down payment, this person must write a letter confirming the money is not a loan and does not need to be repaid. This letter is a formal legal document.
Why Do You Need a Gift Letter for a Mortgage Down Payment?
Lenders decide if you are able to make the required payments on your mortgage based on your debt-to-income ratio. If someone loaned you money for your mortgage down payment and you are required to pay this loan back, this loan would affect your debt-to-income ratio.
However, if the money is freely given and repayment is not expected, this money does not add to your debt. Therefore, most mortgage loans require proof that the funds are a gift. A gift letter for a mortgage down payment provides this critical proof.
A gift letter for a mortgage down payment must be written by the individual providing the gift (the donor). The letter proves to the lender that the funds do not have to be repaid. This letter does not need to be lengthy or overly formal, but it must contain certain elements at a minimum.
There is a basic format for this gift letter below, and a sample letter demonstrating how any qualified donor can use it.
What to Include in Your Gift Letter
This is what you must include in your gift letter for it to serve its primary purpose:
- The donor’s name
- The donor’s contact information
- The home buyer’s name
- The donor’s relationship to the home buyer
- The amount of the gift
- The date of the gift
- A statement that the donor does not expect repayment of the funds
- Address of the home being purchased
- The donor’s signature
The most important element is the statement that the donor does not expect repayment.
Important: Before you present this letter to your mortgage lender, ask the lender who is qualified to offer this financial gift and how much they can give. Ask if the lender needs other information in addition to this letter. Also, be sure to prove the gift funds are in your account when you offer the gift letter to your lender.
Gift Letter for a Mortgage Down Payment (Format)
Here is the format for a gift letter for a mortgage down payment
{date}
To whom it may concern,
I hereby give my {relationship to recipient}, {recipient name} a gift of {amount of money} to be used toward the purchase of the home located at {address}.
I do not expect or require repayment in any form for this gift. I wrote the {(check) or (money order)} for these funds on {date}, and {(he) or (she)} deposited the funds on {date}.
Should you need further information regarding this gift, please contact me using the information below.
Sincerely,
{your signature}
{your name}
{your address}
{your phone number}
Sample Gift Letter for a Mortgage Down Payment
Here is a sample letter based on the above basic format.
January 31, 2022
To whom it may concern,
I hereby give my son, Grant Fowler, a gift of $5,000 to be used toward the purchase of the home located at 1021 South Peoria Avenue, Elysium, MI, 28776.
I do not expect or require repayment in any form for this gift. I wrote the check for these funds on January 2, 2022, and he deposited the funds on January 4, 2022.
Should you need further information regarding this gift, please contact me using the information below.
Sincerely,
Elizabeth Fowler
Elizabeth Fowler
1029 West 93 Street South
Elysium, MI 28779
(872) 399-5000
Gift Letter for a Mortgage Down Payment (Word Template)
- Be sure to include your relationship to the home buyer
- Name the home buyer and the home’s address
- Include the amount and date of the gift
- Clearly state that you have no expectation of repayment
- Sign your letter and include your contact information
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