What Is a Gift Letter? (And Why Lenders Require It)
A gift letter is a signed document that proves money given to you for a down payment is a gift, not a loan. Lenders need this because if the money were a loan, it would increase your debt-to-income ratio and affect your ability to qualify.
📝 What a Gift Letter Must Include:
- ✅ Donor's name, address, and phone number
- ✅ Donor's relationship to you
- ✅ Exact dollar amount of the gift
- ✅ Date the funds were (or will be) transferred
- ✅ Property address (if known)
- ✅ Statement that NO repayment is expected
- ✅ Donor's signature
- ✅ Your signature (the recipient)
📄 Free Gift Letter Template (Copy & Use)
GIFT LETTER
Date: _______________
To Whom It May Concern,
I/We, [DONOR NAME(S)], residing at [DONOR ADDRESS], hereby certify that I/we are making a gift of $[AMOUNT] to[RECIPIENT NAME(S)] to be applied toward the purchase of the property located at [PROPERTY ADDRESS or "To Be Determined"].
I/We are the [RELATIONSHIP] of the recipient(s).
I/We hereby certify that this gift is being made from my/our own funds and that NO REPAYMENT IS EXPECTED OR IMPLIED. This is not a loan.
The funds will be transferred on or before [DATE] via[METHOD: check, wire transfer, etc.].
Sincerely,
___________________________ (Donor Signature)
___________________________ (Donor Printed Name)
___________________________ (Donor Phone Number)
___________________________ (Date)
___________________________ (Recipient Signature)
___________________________ (Recipient Printed Name)
💡 Tip: Your lender may have their own template. Always ask first before using a generic one.
Gift Rules by Loan Type
FHA Loans
Who Can Give:
- ✅ Family members
- ✅ Employers or labor unions
- ✅ Close friends (with documentation)
- ✅ Charitable organizations
- ✅ Government agencies
- ❌ NOT the seller, real estate agent, or anyone with interest in the sale
Gift Limits:
- • 100% of down payment can be a gift
- • 100% of closing costs can be a gift
- • No minimum contribution from buyer required
Conventional Loans (Fannie Mae/Freddie Mac)
Who Can Give:
- ✅ Spouse, domestic partner
- ✅ Parents, grandparents
- ✅ Siblings, aunts, uncles
- ✅ Children (if buying for parents)
- ✅ Fiancé/fiancée
- ❌ Friends (usually not allowed)
Gift Limits:
- • Primary residence, 20%+ down: 100% gift OK
- • Primary residence, <20% down: May need 5% own funds
- • Second home: Usually need 5% own funds
- • Investment property: Gifts usually NOT allowed
VA Loans
Who Can Give:
- ✅ Anyone! (most flexible)
- ✅ Family, friends, employers
- ✅ Charitable organizations
- ✅ Even the seller (within limits)
Gift Limits:
- • 100% of down payment can be a gift
- • 100% of closing costs can be a gift
- • No minimum contribution required
- • Most flexible gift rules of any loan type
USDA Loans
Who Can Give:
- ✅ Family members
- ✅ Charitable organizations
- ✅ Government agencies
Gift Limits:
- • 100% of closing costs can be a gift
- • No down payment required (0% down)
🎁 Ready to Use Gift Funds?
Get pre-approved and let your lender know you'll be using gift funds. They'll guide you through the exact documentation needed.
Compare Lenders & Get Pre-Approved →Additional Documentation You'll Need
The gift letter alone isn't enough. Lenders want to verify the gift is legitimate and the donor actually has the funds. Here's what else you'll need:
📄 From the Donor:
- ✅ Bank statements (1-2 months) showing funds
- ✅ Proof of withdrawal/transfer
- ✅ Copy of the check or wire confirmation
📄 From You (Recipient):
- ✅ Bank statements showing deposit
- ✅ Paper trail matching the gift letter amount
- ✅ Explanation if timing doesn't match
⚠️ Red Flags That Delay Closing
Large unexplained deposits
Any deposit over $500 that isn't from your paycheck needs explanation.
Cash deposits
Cash is hard to trace. Have the donor write a check or wire the funds instead.
Gift letter doesn't match deposit
If the letter says $20,000 but you deposited $25,000, you'll need to explain.
Donor doesn't have funds in their account
Lenders verify the donor actually had the money to give.
Gift from prohibited source
Gifts from sellers, agents, or interested parties are usually not allowed.
💰 Tax Implications (Don't Worry, It's Good News)
The Recipient (You) Pays NO Tax
Gift recipients never pay income tax on gift money. Period. Whether it's $5,000 or $500,000, you owe nothing.
The Donor's Situation (2025 Rules)
- • Annual exclusion: $19,000 per person, per recipient (2025)
- • Married couples: Can give $38,000 together without reporting
- • Over the limit? Donor files Form 709, but likely owes no tax
- • Lifetime exemption: $13.99 million (2025) before any tax is owed
💡 Bottom line: Unless your parents are giving you millions, no one pays gift tax.
Frequently Asked Questions
Can my friend give me a gift for my down payment?
For FHA and VA loans, yes—friends can give gifts with proper documentation. For conventional loans, friends are usually NOT allowed; only family members qualify. Check with your lender for specific requirements.
Can the seller give me money for my down payment?
No, sellers cannot gift you money for your down payment. However, sellers CAN contribute to your closing costs (called seller concessions). FHA allows up to 6%, conventional allows 3-9% depending on down payment.
How far in advance should I receive the gift?
Ideally, receive the gift 60+ days before applying for a mortgage. This way, it's "seasoned" in your account and requires less documentation. If you receive it closer to closing, you'll need more paperwork to prove its source.
Can I use a gift for closing costs too?
Yes! Gift funds can typically be used for both down payment AND closing costs. The same gift letter rules apply. Just make sure the letter specifies the total amount being gifted.
🏠 Ready to Buy with Gift Funds?
Get pre-approved and discuss your gift fund situation with a lender. They'll tell you exactly what documentation you need.
Get Pre-Approved Today →Related Guides
Emily Chen
Mortgage Documentation Specialist • 8+ Years Experience
Emily has helped thousands of buyers navigate gift fund documentation and avoid closing delays.