When part of a down payment comes from family, mortgage underwriters need proof that the money is a gift and not a disguised loan, because an undisclosed loan changes the borrower's debt picture. The gift letter is that proof: a short signed statement covering the amount, the relationship, the source of the funds, and the magic words, no repayment expected.
Every major loan program, including conventional loans and FHA and VA loans, accepts gift funds with a letter along these lines, but each lender has its own required elements and often its own form. Use this letter as the complete standard version, and switch to the lender's form if they supply one.
What underwriters look for in a gift letter
- The donor's full name, address, and phone number
- The relationship to the borrower (programs restrict who may give)
- The exact dollar amount and the transfer date
- The source of funds and the institution holding them
- The property address the gift supports
- An unambiguous statement that no repayment is expected
- The donor's signature (some lenders also ask the borrower to sign)
Beyond the letter, expect a paper trail request: the donor's statement showing the funds leaving, and the borrower's statement showing them arriving. Move gift money in one clean, traceable transfer rather than cash.
Who can give, and program differences
Loan programs restrict eligible donors. Conventional loans generally accept gifts from relatives, and in some cases from domestic partners or fiances. FHA loans accept family members and, within limits, close friends with a documented interest in the borrower, employers, and charitable organizations. What no program accepts is a gift from an interested party to the transaction: the seller, builder, or agent cannot fund the buyer's down payment through a disguised gift. Requirements change and vary by lender, so confirm donor eligibility with the loan officer before the funds move.
Never sign a gift letter for money that must be repaid
Stating that funds are a gift when repayment is expected is mortgage fraud, a federal crime for both donor and borrower. If the money is a loan, disclose it as a loan and let the lender underwrite accordingly.
The tax side for donors
Receiving a gift is not taxable income to the home buyer. For the donor, federal law allows an annual amount per recipient that is excluded from gift tax reporting; gifts above the annual exclusion generally require the donor to file a gift tax return, though actual tax is rarely owed because of the large lifetime exemption. The exclusion and exemption figures are adjusted over time, so check the current IRS thresholds or ask a tax professional when the gift is substantial.
Frequently asked questions
Does a mortgage gift letter need to be notarized?
Usually not. Lenders require the donor's signature and supporting bank documentation, not notarization. If a particular lender wants a notarized letter, they will say so; this format works either way.
Can the gift cover the entire down payment?
Often yes, depending on the program, the property type, and the borrower's profile. Some conventional scenarios require a minimum contribution from the borrower's own funds. The loan officer can confirm what the specific program allows.
Does the donor have to show bank statements?
Very commonly, yes. Underwriters typically want to see the funds in the donor's account and the transfer to the borrower, to rule out borrowed or interested-party money. Donors uncomfortable sharing full statements can ask the lender what redactions are acceptable.
Is the gift taxable for the buyer or the donor?
The buyer owes no income tax on a gift. The donor may need to file a federal gift tax return if the gift exceeds the annual exclusion for the year, though actual tax is rarely due because of the lifetime exemption. Check current IRS figures for the year of the gift.
When should the gift funds be transferred?
Either well before applying, so the funds are seasoned in the buyer's account, or during underwriting with a fully documented transfer. The worst option is undocumented cash moved at the last minute, which underwriters cannot verify.