If you are buying a home, you know just how expensive houses can be. In some cases, family members or friends might be willing to offer up gift funds to help you to afford your home. The down payment is often the most expensive part of the home loan process. As housing costs go up and up, more and more people need gift funds to help them buy a home.
If you are going to use gift funds to help you with your home purchase, you need to make sure that the gift money is covered by a gift letter. The mortgage gift letter is a common document that is used to help make sure that down payment information is made clear throughout the home loans process.
Table of Contents
- 1 Gift Letter Examples
- 2 What is a Gift Letter Template Used For?
- 3 Gift Letter Templates
- 4 Can I Write My Own Gift Letter Template?
- 5 What Are the Components of a Gift Letter Template?
- 6 Gift Letters For Mortgage
- 7 How Important is the Down Payment for a Home Purchase?
- 8 Does My Mortgage Gift Letter Need to be Notarized?
- 9 FHA Gift Letters
- 10 Can I Use Gift Funds for FHA Loans
- 11 Gift Letters For Estates
- 12 Mortgage Gift Letter Templates
- 13 Gift Letter Templates Are Easy to Write
Gift Letter Examples
What is a Gift Letter Template Used For?
The mortgage gift letter template is used to document contributions toward the down payment that come from other people helping you pay for your home. A real estate agent will be familiar with the gift letter template process, but you might also want to know more about it before you agree to have family members contribute to your home loan.
The reason that you need to have a gift letter in place if family members offer to help you pay for your home is because the money needs to be tracked carefully so that it is not mistaken for a loan. Most people cannot get approval for a home loan if they have another open loan at the time that they are looking to buy a home. Making sure that there are gift letters completed for all the potential gift money that you receive will prevent the lender involved in the deal from denying your application for a mortgage.
While it might seem silly to you as the person receiving the gift, the mortgage gift letter is considered standard practice to help document where the added money in your down payment came from. A real estate agent will be able to advise you about this process, and most banks will also make you aware that this is a common item to add to your loan documentation if you are getting help with your down payment.
Gift Letter Templates
Can I Write My Own Gift Letter Template?
You can write your own gift funds letter if you wish. There are many mortgage gift letter template options out there to choose from. Gift letters can be very general, or they can have a lot of detail included in them. In most cases, however, the down payment gift letter can be fairly simple and still hold up to scrutiny.
Even if you are buying an investment property, you are allowed to accept payment assistance for your closing costs and down payment. Mortgage loan companies see this kind of assistance all the time, and they are familiar with the process of helping those looking for a loan to use gift letters to document mortgage loan and closing costs assistance. The mortgage gift letter document is fairly simple, and you should be able to write your own version of this document with ease.
What Are the Components of a Gift Letter Template?
This kind of down payment letter is a little unusual because of these reasons:
- It actually documents the intention of another party to give a gift rather than detailing your acceptance of the gift.
- It doesn’t need to be notarized.
- It does not need to have a lot of information included in it other than the details of the gift and who is giving it.
If you are ready to start generating a mortgage gift letter, you will need to include the following components:
- A statement that indicates the legal names of the person or persons who are giving the down payment gift. You cannot use nicknames or shortenings of the names involved for legal reasons.
- You will need to state the address of the property that is being purchased. This is true whether the gift letter for a mortgage is related to a purchase of property alone as well as property with a home on it.
- You will also need to have the contact information of the person who is offering the gift funds. No nicknames should be used, and the address and contact information of the person should be included as well. A mortgage gift letter is part of your home purchase, so you cannot afford to be general in the information that is included in this letter.
- The donor relationship will need to be included. This could be a parent, a friend, or any other person who wants to help you out with a gift amount.
- The source of the gift will need to be included as well. This could be cash, the information of the bank account that a transfer is being made from, or investment property that is being used to create the down payment gift. Your mortgage company might not be willing to allow all of these different kinds of funds to be included in your down payment. You should be sure that you speak with the mortgage company to make sure that you are not creating a gift letter template documenting funds that you cannot actually utilize for your home purchase.
- You should include a statement that this letter is documenting a gift amount and that there will be no further support or assistance that will be offered related to this mortgage process. This is not required, but it can be a good idea to make sure that the letter is associated with mortgage gifts and nothing else.
- The signatures of both parties who are involved in the mortgage gifts process. If there is more than one person who is involved in offering the payment gifts, each party will need to sign the mortgage gifts letter. This is key for any kind of letter process, and you should be familiar with this part of the documentation process from conventional loans.
Gift Letters For Mortgage
How Important is the Down Payment for a Home Purchase?
Gift funds can be crucial to your home purchase. Many lenders will require a minimum of 20% of the total cost of the home to be put down during the purchase process. This down payment is typically not negotiable as well. You will need to have the funds necessary to meet this requirement to be able to buy the home that you have fallen in love with.
Down payments aren’t usually flexible unless you meet certain requirements as a home buyer. A first-time mortgage program might reduce the amount of the down payment that you need to provide to buy a home, or you might qualify for a hardship. The gift letter process can be critical when it comes to documenting the added funds that you need to be able to qualify to buy a home.
The down payment is often the first thing that a lender or bank will attempt to figure out with you before you are allowed to progress throughout the purchase process. Without a down payment, you are unlikely to be able to buy a home, no matter how much money you make or how many other homes you have earned in the past.
Does My Mortgage Gift Letter Need to be Notarized?
While it might seem like the mortgage gift letter will need to be notarized, it actually doesn’t require being witnessed. This is a document that is included in your overall home purchase, which means that it isn’t a standalone document. Gift letters are also usually just part of the original stages of the home buying or home loan application process and are not a loan document in and of themselves.
Your gift letter still needs to include all the right information to be used as a mortgage gift letter, but it will not need to be witnessed before it is added to the overall mortgage documentation used for your home-buying process.
The gift letter for the mortgage will not impact closing costs directly, nor will it have anything to do with future services that are utilized for your loan. The gift amount is not specifically involved in escrow since the down payment is a standalone requirement that must be met before you can even actually apply for the rest of the loan process.
Your real estate agent or your home loan officer will be able to advise you about details related to their requirements for documenting gift amount letters or FHA gift letter templates. It is not likely that this document will need to be witnessed or to have any extra information included, but it is always a good idea to check on this detail before you start drafting the letter template.
FHA Gift Letters
Can I Use Gift Funds for FHA Loans
Yes, you can use a gift amount to help you qualify for an FHA loan. FHA loans are Federal Housing Administration loans. These loans are granted to those who need financial assistance to get a home. There are usually rescued closing costs and other perks that can be associated with this kind of loan. Mortgage payments on these loans are intended to be more attainable for those who don’t make very much money each month.
FHA Loans can benefit from down payment gifts just like regular housing loans. The gift amount can still be used to help you meet the down payment requirements for this special loan type. As with regular home loans, the gift letter is not a loan document specifically. It is simply documentation that allows the mortgage company or real estate agents to prove where the gift amount comes from that is involved in the sale.
Gift Letters For Estates
A gift letter template can also be used if someone plans to give you a large gift out of an estate. These gifts are often sizable enough that you might need to pay an associated gift tax. An accountant might need to help you navigate and document this kind of gift letter and the related taxes that need to be paid. Having a tax professional involved when you are given a gift of this kind is always a really good idea for a variety of reasons.
Estate planning can have many more steps that need to be taken care of than a simple home loan. This is especially true if the large gift is related to investment properties or a property located outside of your state of residence. Your gift letter will need to be correctly drafted to meet the needs of these specific situations. The gift letter process for a gift transfer is quite different when it is involved in a house purchase, which can lead people astray who have never been granted this kind of inheritance or gift.
Not all gifts are taxable. Some exceptions are:
- Gifts not in excess of the limit per annum
- Tuition payments
- Medical expense payments
- Gifts to a spouse
- Gifts to political organizations
Any gift funds that do not meet these requirements are likely to be taxable. The exact dollar amount is key in gift letter drafting to know if taxes will be involved in the gifting process.
Mortgage Gift Letter Templates
Gift Letter Templates Are Easy to Write
A gift letter template is actually very simple to write. These letters are most often used in the mortgage process but can also be used related to estate gifting or large personal gifts. Make sure that you work with an accountant or a skilled estate planner if you have questions about the use of the gift letter process related to anything other than the home loan process.
Getting the details of this letter right is important, but you do not need to worry about having a notary witness its signature. FHA approved lenders might have other requirements that need to be followed when you are planning to include a monetary gift in the home purchase process. You will always want to be certain that you are familiar with the rules and regulations related to the use of a gift to help finance a home loan.