Gift Letter

A stressful aspect for many home buyers is coming up with the down payment. To help cover it, many first time and repeat buyers get help from a friend or relative through a gift payment. Many lenders allow for cash gifts to cover conventional loans as well as FDA, USDA, and VA loans. If you need help with covering a home mortgage loan a gift payment can be of invaluable help. However, they come with some restrictions, and if you receive it within 60 days of your closing, you will need to provide a source for where you got it.

Types of Gifts Allowed

Most money gifts come from either one or more individuals. In most cases, these types of gifts are restricted to family members. The exception is FHA loans which typically allow gifts from a friend, relative or employer. However, an FHA loan is subject to a maximum gift payment of 6% of the purchase price, which can only be used for the closing costs.

Another type is a down payment that comes in the form of home equity. For instance, a family member could offer to sell you the home for less than its appraised value. The price difference you save can then be used as the down payment, similar to a cash gift.

What Gifts are Unacceptable?

The most important thing with any gift payment, regardless of the type of loan, is that it be legitimate. There can be no side arrangements between the donor and the receiver to pay back the mortgage.

The gift can also not come from anyone who would benefit from the sale, such as a lender, agent or seller. Even if they are related to the buyer. Any funds received from someone involved in the transaction is subject to the limits of “interested party contributions” as designated by the terms of the loan. Any funds such as this cannot be used for the down payment, only the closing costs.

Gift Letter for Mortgage Down Payment

If you do use a gift payment, then you’ll need what’s called a gift letter for the mortgage if the gift is made within three months of the closing. Typically, lenders want to see your statement history for the last three months. If the gift was made before then, it’s unlikely you’ll need one. If though it has been recently received or still in the donors account you’ll need to prove it is legit with no strings attached.

Even if you are not taking out a mortgage loan and paying all cash, you’ll still need a gift letter to explain the source of the funds. This is usually not the case when buying a condo in NYC but should be expected if buying a co-op. As part of the application process, the co-op board will be reviewing all your finances. If you’re receiving a gift payment from family to cover the costs, then you’ll get a gift letter, even if you’re not taking out a mortgage.

Gift Letter Sample 1

You can keep it simple and informal if you’re only writing for a co-op board or seller that wants to verify the gift. See the second example below for one to use when applying for a mortgage.

April 2nd, 2018

1058 Laymen Court
New York, NY, 10001

Dear Sir or Madam:

We, Kyle Jowett and Kim Jowett intend to make a cash gift of $600,000 to Philip Jowett, our son, to be used for the purchase of the property located at 545 Raver Croft Drive, New York, NY 10019.

No repayment is expected or implied in the gift, either in the form of cash or future services, and no lien will be filed by us against the property.

The source of the gift is Bank of United States.

Signatures of Donors
Kyle Jowett and Kim Jowett

Telephone Number: 555-555-555

Gift Letter Sample 2

If the gift letter is for a mortgage lender it needs to be a little detailed and formal. Something like the following should suffice.

April 2nd, 2018
1058 Laymen Court

New York, NY, 10001

1. General Information
Dear Sir or Madam:

I, Kyle Jowett of [Donor’s mailing address and telephone number] wish to provide a gift of $[Amount] to my son, Philip Jowett, to close the mortgage transaction on the purchase of the property located at [Address].

2. Location of the Funds
The location of the funds is at [Account information: Depository name, address and account number].

3. Donor/Recipient Certification
This is a bonafide gift, with no obligation, expressed or implied, that it be paid back in the form of cash or future services. The funds provided to the homebuyer have not come from any person or entity with interest in the sale of the property.

Donor Signature and Date:
Recipient Signature and Date:

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