A gift letter is the document that tells the lender a deposit in your account, or a wire to closing, is a gift and not a loan. Without it, an underwriter has to treat a large sum from a parent as debt, which can wreck your debt-to-income ratio. With it, the money counts toward your down payment and closing costs.
Most lenders hand you their own one-page form. The wording varies, but the required facts don't.
What goes in the letter
Fannie Mae requires the letter to show:
- The actual dollar amount of the gift, or the maximum amount
- The donor's name, address and telephone number
- The donor's relationship to you
- A statement that no repayment is expected
- The donor's signature
FHA asks for the same facts and adds a second signature: the buyer signs the letter along with the donor. FHA lenders also want the donor's source of the money traced, such as the donor's bank statement or withdrawal record.
Sample wording
I, Maria Lopez, of 120 Palm Avenue, Ocala, Florida, phone [donor's phone], am giving my son, Daniel Lopez, a gift of $8,000 toward the purchase of his home. This is a gift. No repayment is expected or implied, in cash or future services. Signed, Maria Lopez. Signed, Daniel Lopez.
Two donors and a bank statement
A buyer earning $4,600 a month gets $8,000 from a mother and $5,000 from a grandmother. Each donor signs a separate letter, because each one is giving a separate amount.
| Line on the buyer's bank statement | Amount | Balance |
|---|---|---|
| Starting balance | $3,200 | |
| Deposit from mother | $8,000 | $11,200 |
| Deposit from grandmother | $5,000 | $16,200 |
The two gifts total $8,000 plus $5,000, or $13,000, and the ending balance of $16,200 is $3,200 of the buyer's own money plus $13,000 in gifts. Fannie Mae calls a single deposit above 50% of monthly qualifying income a large deposit that needs its source documented. Half of $4,600 is $2,300, so both deposits qualify as large, and each letter plus the donor's withdrawal record explains one of them. If the grandmother had sent $5,500 against a letter that says $5,000, the underwriter would ask for a corrected letter before approving the loan.
Mistakes that hold up a closing
The amount on the letter doesn't match the deposit. The donor is someone the program doesn't accept, such as a friend without a documented relationship on a Conventional loan. The letter is unsigned, or on FHA, signed by the donor but not the buyer. The money arrives in cash with no account behind it. Each one is fixable, and each costs days if it's caught late.
Before any money moves, settle on the gift amount using the cash to close calculator. AAA Capital Funding can send you a gift letter form and check it before the donor signs: call 888-601-8344.