What is a gift letter for a mortgage?

Fourteen percent of current homeowners received a gift from family or friends to put toward the down payment and closing costs on their first home, according to Bankrate’s Down Payment Survey. When homebuyers receive gifted funds for a down payment, mortgage lenders typically require a gift letter to document where the funds came from, among other provisions. Here’s how these letters work, plus some down payment gift rules you should know.

What is a gift letter for a mortgage down payment?

A mortgage gift letter is a document that helps satisfy the requirement that a borrower’s down payment funds come from legitimate sources. The letter involves the giver verifying, in writing, that they did in fact gift the money to the borrower, that there’s no expectation for repayment and that the funds are to be used for the purchase of a home.

At minimum, a gift letter should include:

• The giver’s name and relationship to the borrower
• The dollar amount of the gifted funds along with the date the funds were given
• The source of the gifted funds, such as an account number and statements
• The purpose of the gifted funds
• The address of the home (if an offer is already in place)
• Language indicating the borrower doesn’t have to pay back the gifted funds
• Language indicating the giver won’t have an ownership claim to the home, now or in the future

Learn more: Current mortgage rates

Why lenders want to see a gift letter

When a mortgage lender underwrites a loan application, they verify the borrower’s finances, including down payment funds. When a borrower receives gifted down payment funds, a gift letter establishes and explains the origin of those funds. It also proves the money is a no-strings present, not an additional debt the borrower is responsible for.

Lenders care about this because they measure your debt-to-income (DTI) ratio. This ratio shows how much of the money you bring in is allocated to debt you need to repay. Too much makes you a risky borrower. A mortgage gift letter ensures that the gifted money isn’t included in your total debt, helping to keep your ratio lower.

Gifted money isn’t considered taxable income, so it doesn’t increase your tax burden. That keeps more of your money free to repay your mortgage, which lenders also like to see.

Who can gift money for a mortgage down payment?

Most loan programs allow gift money from family members, and some lenders also permit gifts from non-relatives.

So, who can gift money for mortgage down payment amounts based on the loan type? Let’s break it down.

Fannie Mae-conforming conventional loans

Conventional loans through Fannie Mae allow gifts from anyone you’re related to by:

• Blood
• Marriage
• Adoption
• Legal guardianship

Upcoming marriages also count. Your fianacé(e) could gift you the money, for example, per Fannie Mae down payment gift rules.

Fannie Mae also allows for grant money and loans that you can defer repaying.

Freddie Mac-conforming conventional loans

Freddie Mac has similar rules, allowing gift funds from what it calls “related persons.” Those include:

• Anyone related to you by blood, marriage or adoption
• A guardian of yours, or someone for whom you’re a guardian
• Your fiancée or fiancé
• Your domestic partner
• An unrelated individual with close, family-like ties to you

The gift can also come from the estate of or a trust established by a “related person.”

FHA loans

Loans backed by the Federal Housing Administration (FHA) allow gifts to come from:

• Family members
• Employers and labor unions
• A close friend with a clearly defined and documented interest in you
• Charitable organizations
• Governmental agencies or public entities that have a program providing homeownership assistance to low and moderate-income and first-time buyers

USDA and VA loans

The U.S. Department of Agriculture (USDA) and the U.S. Department of Veterans Affairs (VA) don’t have rules about who can give you money. Instead, both agencies’ down payment gift rules focus on who can’t contribute.

Per the USDA, anyone can give you money toward a mortgage down payment provided they aren’t a “source that has an interest in the sale of the property (seller, builder, real estate agent, etc.)”

Similarly, the VA specifies that money can come from any “donor that does not have any affiliation with the builder, developer, real estate agent or any other interested party to the transaction.”

How to use gift money for a down payment

If a relative or friend plans to give you down payment funds, you’ll need to provide a gift letter and bank statements showing the movement of funds between the giver and you.

It’s best to receive those funds at least two months’ prior to applying for a mortgage so that they’re properly “seasoned.” When buying a home, seasoning is the amount of time mortgage lenders require down payment funds to be present in your account.

That’s not to say you can’t use gifted funds you received within 60 days of your application, however. In this instance, your lender might simply ask for more documentation.

Down the line, once you find a home and your lender clears you to close, you’ll make your down payment — including the gifted funds — at closing. The down payment is part of cash to close. Typically, you’ll pay this sum via cashier’s or certified check or wire transfer.

Mortgage gift letter rules by loan type

• Conventional loans: If you’re buying a single-family home as a primary residence with a Fannie Mae- or Freddie Mac-backed conventional loan, your entire down payment can come from a gift from an eligible donor. If your loan is backed by Freddie Mac, you might also be able to use wedding or graduation gifts, so long as you provide a copy of your marriage license or your diploma, respectively.
• FHA loans: The Federal Housing Administration (FHA) backs mortgages with a minimum down payment of 3.5 percent. That full amount can be gifted, but the FHA requires a gift letter and supporting documents.
• VA loans: Mortgages guaranteed by the U.S. Department of Veterans Affairs (VA) require no down payment, but VA guidelines allow borrowers to put gift funds toward closing costs or a down payment (if the borrower opts for one). The documentation rules are similar to those of FHA and conventional loans.
• USDA loans: The U.S. Department of Agriculture (USDA) guarantees no-down payment mortgages to borrowers with low to moderate income in USDA-approved rural areas. Like the VA loan program, gift money can be used to pay closing costs. You’ll need to provide a gift letter and supporting documents consistent with the gift letter rules of other loan programs.

Mortgage gift letter rules by property type

The rules around gift amounts vary by the type of property you’re buying. For conventional loans, the following rules apply:

• Primary residence: You can use gift funds to buy a primary residence, or the home you intend to live in. If you’re buying a single-family residence (not a duplex or other multi-unit property), you can make the down payment entirely with gift funds.
• Second home: If you’re putting down at least 20 percent, the gifted funds can be used to cover the entire amount. If your down payment is less than 20 percent, at least 5 percent of your down payment must be from your own money, not gifted funds.
• Investment property: You can’t use gift funds for the down payment on real estate you’re investing in or otherwise using for income.

Gift letter for mortgage template

Your lender might have a gift letter template it requires borrowers to use, so be sure to ask your loan officer before writing your own. Below is a sample for illustrative purposes only.

Should you gift a relative a down payment?

In this era of high rents, pricey homes and student debt burdens, it’s challenging for young people to save for a down payment. If you’re in a position to help your child or other relative buy a home, you’d be putting them on the path to building equity and wealth sooner.

Consider, though, why your child needs help buying a home. Your support might not be enough for them to become a successful homeowner if they aren’t financially literate or responsible in general, for example.

Also, depending on the gift amount and your relationship with the recipient, there might be gift tax implications. The IRS’s annual exclusion for gifted amounts maxes out at $19,000 in 2025. The person gifting the money may need to file a gift tax return if they exceed that limit, however, you as the recipient won’t be taxed. Be sure to consult with a tax professional to learn what applies to your situation.

Alternatives to down payment gifts

There might be other ways you can help your child buy a home other than giving down payment funds. Consider:

• Buy the home, then have your child repay you. This option could simplify the process for your child, but it’s still complicated. This kind of transaction should only be done with the help of the attorney.
• Co-sign the mortgage application. This can boost your child’s chances of securing financing. Bear in mind that co-signing means you won’t have any ownership stake in the home, but you’ll be on the hook for the payments if your child can’t make them. If you’re retired or close to it, you might not be able to shoulder that cost on a fixed income.
• Become a co-borrower on the mortgage. Also referred to as a co-applicant, this status is similar to being a co-signer, but it gives you ownership to the home. However, it also gives you more paperwork and liabilities: The lender will consider your assets, credit history and income as part of the application. It will also consider you equally responsible for the debt — not just if the child falls delinquent.
• Help with the closing costs. Though not always as big as a down payment, helping with these upfront costs can ease the homebuying burden.
• Allow your child to rent a room at home at a reduced rate — or for free. If you’re fine with your child living with you and have the space, you can help boost their down payment savings by offering a room in your home, either at no cost or for below-market rent. If you choose to charge rent, establish an agreement around how long they’ll rent from you, as well as any other household expenses you’d like them to contribute to during their “lease.”

FAQ

• Is there a limit on how much down payment gift funds you can receive?

  There isn’t a limit imposed by mortgage lenders or specific loan programs, but in rare cases there might be tax implications for the giver. For 2025, an individual can gift up to $19,000 without any tax consequences. That’s just the annual exemption, however. There’s also an exemption that applies to gifts over a lifetime. For this reason, most givers won’t be subject to the gift tax, even if reporting a large gift.

• Do you pay taxes on the gift money you receive?

  Recipients of gift money for a mortgage do not have to report the money received as a gift to the IRS, nor pay taxes on its value.

• Can you use gift money for costs other than the down payment?

  Yes. Most loan programs allow gift money for alternative purposes like covering closing costs or buying mortgage points. It’s important to review the rules for the loan type you’re considering, though, so you don’t lose eligibility.