Gift Letter for a Mortgage

When you receive money as a gift towards a home purchase, mortgage lenders will ask for a gift letter as proof. A gift letter for a mortgage is a written statement confirming that the gift money you receive from a family member or friend is a gift, not a loan. According to a 2024 Zillow survey, 30% of mortgage buyers used a gift or loan to finance their down payment. In instances like this, gift letters are used to explain the sudden large sum of money that appears in your bank account.

To get an idea of your down payment costs and how much gift money you may need to close on a home, chat with one of our loan officers at Zillow Home Loans* about your mortgage loan options.

What is a gift letter?

A gift letter is a way for lenders to verify that the person giving you money for a mortgage isn’t involved in the home purchase. Lenders will use the gift letter to verify the donor, the source of the funds, the amount of the money, and that the money is a gift and not a loan you’re obligated to pay back. Gift letters are legally binding documents. Once signed, both the person gifting the funds and the person receiving the funds are obligated to follow through with the terms of the agreement.

How to write a gift letter

When writing a gift letter to share with your mortgage lender, you’ll usually need to include the following:

• The gift amount
• The date you received the gift money
• The address of the property you plan to purchase 
• Your relationship with the gifter
• The gifter’s name, address, and phone number
• The gifter’s bank statements to show funds going to the buyer
• The buyer’s bank statements to show funds coming from the gifter
• A statement that the money is a gift and there’s no expectation of repayment
• Your signature and the gifter’s signature

Gift letter template

Mortgage lenders typically have their own version of a gift letter template. Check with your loan officer before drafting your own gift letter. This will save you valuable time and ensure your gift letter aligns with your mortgage lender's requirements.

How much money requires a gift letter?

The amount of gift money that requires a gift letter depends on the type of loan you get. For conventional loans, VA loans, and jumbo loans, lenders typically require a gift letter when you receive gift funds that are more than half your total household monthly income. So, if your monthly income is $5,000 and you receive more than $2,500 as gift money for your home purchase, your lender will likely require a gift letter to document from whom and where the money is coming. For FHA loans and USDA loans, gift funds that exceed 1% of the home’s appraisal value or purchase price (whichever is higher) will require a gift letter.

How to use gift money for a mortgage

Gift money is most commonly used towards a down payment, but you can also use it towards closing costs. While lenders don’t typically limit the amount of money you can receive as a gift to put towards your mortgage, the actual rules for giving and receiving gift money vary by loan type. Gift money can be sent directly to you, as the buyer, or the title company or title attorney handling the closing. Your lender may have a preference, and the steps to verify gift funds vary depending on how they’re received.

Who can give gift money for a mortgage?

Lenders typically only allow gift money from family members, significant others, in-laws and close friends. Anyone involved in the home's sale or who you can’t prove a relationship with cannot gift you money for a mortgage. The home loan you choose may have different requirements regarding who can gift you money. 

Mortgage gift letter rules by loan type

Conventional loans

For conventional loans, you can receive and use gift funds to cover your total down payment and closing costs, or put the money towards your cash reserves if you already meet the loan borrowing qualifications. 

The people who can gift you money for a conventional loan are proven family members, whether by blood, adoption, marriage, or legal guardianship, which includes:

• Parents
• Children
• Grandparents and great-grandparents 
• Aunts and uncles
• Nieces and nephews
• Cousins
• In-laws
• Significant others and fiancés

FHA loans

If you apply for an FHA loan, you can use gift money to cover your down payment, closing costs, or cash reserves. The FHA also specifies that gift money can come from:

• Family members
• Employers or labor unions
• Close friends
• Charitable organizations
• Government agencies or public entities that offer programs for homeownership assistance for low- to moderate-income families and first-time home buyers

VA loans

While VA loans don’t typically require a down payment, you may choose to make a down payment in addition to the required funding fees and closing costs. The gifted money on a VA loan can only be used towards a down payment, funding fee, or closing costs — not cash reserves. Anyone not involved in the transaction can gift you money for a VA loan without limits. An example of parties involved in the transaction and unable to gift you money include the seller, lender, builder, and real estate agent. 

USDA loans

USDA loans, like VA loans, don’t have a down payment requirement, so you can use your gift money to cover the total amount of your closing costs, but not your cash reserves. Similar to VA loans, gift money for USDA loans can come from anyone not involved in the transaction, and can be used for a down payment if you choose to make one.

Mortgage gift letter rules by property type

While there aren’t any limits on the amount of money someone can give you for your down payment, depending on the property type, you may be required to pay a portion of it yourself. 

• Single-family homes used as primary residence: you can use gift money to fund the total down payment amount. 
• Multi-unit homes used as primary residence: you can use gift money to fund the total down payment if the down payment is at least 20% — otherwise, you must contribute 5% of your own money.
• Secondary residences: If you're putting down 20% or more, you can fund your total down payment with gift money; otherwise, you must contribute 5% of your own money.
• Investment properties: you cannot use gift money.

Tax implications for gift funds

While gift money recipients don’t have to pay taxes on the funds they receive, those giving monetary gifts may be taxed, depending on the amount. The 2024 annual gift exclusion is $18,000, which means whoever gifts you money exceeding this amount must file a gift tax return. This tax exclusion applies to the monetary gift per person, meaning that you and your spouse or co-borrower may separately receive gift funds of $18,000 from the same person without triggering the taxation.

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