Why You May Need a Gift Letter

When someone gives you money to help you buy a house, your lender will require a gift letter. A gift letter is a written statement confirming that the funds given to a borrower are indeed a gift and not expected to be repaid. This letter must explain who is gifting the money, the relationship between the donor and the recipient and where the funds are coming from.

“Why do lenders need a gift letter?”

A gift letter is important for the lenders for three reasons:

  1. To document that the person gifting you the money isn’t a party to the home purchase.
  2. To provide in writing that the money you’re receiving is a gift and not a loan.
  3. To inform the IRS of the gift amount for tax purposes.

Please note, at the bottom of most gift letters there is a notice about making false statements called a “fraud notice.” If the money being given isn’t really a gift, you could be accused of mortgage fraud if you complete a gift letter.

“Are there limits to gift amounts?”

In general, your underwriter will need to verify the source of any large deposits in your account. So, what constitutes a “large” deposit? It can vary by loan type. For some programs, it is any single deposit that exceeds 50% of your qualifying monthly income. For others, it may be any deposit that is greater than 1% of the home’s purchase price or appraised value.

There are no limits on the amount someone can give you for a mortgage down-payment or closing costs. However, depending on the loan and property type, you may be required to contribute a certain percentage of the down-payment from your own funds.

Each loan type will have different rules and requirements regarding gift letters, so be sure to follow up with your Pulte Mortgage Loan Consultant if you have any questions!