How to Write a Gift Letter for a Mortgage

A gift letter is a formal document verifying that funds or assets transferred from one party to another are indeed a gift, rather than a loan. It confirms no repayment is expected. Its purpose is to provide clear proof of the financial transfer’s nature, ensuring transparency and compliance. Gift letters are frequently used in significant financial transactions, such as mortgage applications, where the source of funds for a down payment or closing costs must be explicitly documented. They are also used for immigration or other personal gifts.

Essential Components of a Gift Letter

For a gift letter to be effective, especially in a mortgage application, it must contain specific information. The letter begins by clearly identifying the donor, including their full legal name, current address, and contact information. Similarly, the recipient’s full legal name, current address, and contact details must be provided, along with a clear statement of their relationship to the donor, such as “son,” “daughter,” or “friend.” This identification helps establish the connection between the parties.

The precise amount of the gift must be stated, typically expressed in both numerical and written form, for example, “$10,000.00 (Ten Thousand US Dollars).” An explicit statement confirming that the funds are a gift and that no repayment is expected or implied is important. This declaration ensures that the money is not misconstrued as an undisclosed loan, which could impact the recipient’s debt-to-income ratio and mortgage eligibility.

Additionally, the letter should state the specific purpose of the gift, such as “for the down payment on a property located at [Property Address],” or “to assist with closing costs.” For mortgage applications, lenders often require the donor to disclose the source of the gift funds. This might be a simple statement like “from my savings account” or “from the sale of stocks.”

The date the letter is written must be included. Finally, the letter requires a space for the donor’s legal signature, which serves as their formal acknowledgment and agreement to the terms stated within the document. These components collectively create a comprehensive record of the gift, addressing the requirements of financial institutions.

Structuring Your Gift Letter

After gathering all necessary information, arrange it into a clear and professional gift letter. The letter should follow a standard business format, typically beginning with the donor’s contact information placed at the top. Below the donor’s details, the current date should be included, followed by the recipient’s contact information.

A formal salutation, such as “To Whom It May Concern” or “Dear [Recipient Name],” introduces the body of the letter. The opening paragraph should clearly state the letter’s purpose, for example, “This letter serves to confirm a gift of funds to [Recipient’s Full Name].”

Subsequent paragraphs detail the gift amount, confirming the funds are a gift and not a loan, and specifying their intended use. State clearly, “The sum of [Gift Amount in numbers and words] is being provided as a gift for the purchase of the property located at [Property Address].” The letter should explicitly state that there is no expectation of repayment, and that the donor holds no claim or interest in the property being purchased.

If required by the lender, the source of the gifted funds should be naturally integrated into the body of the letter. The letter concludes with a closing, such as “Sincerely,” followed by a space for the donor’s signature. The donor’s full legal name should be typed below the signature line. Maintain clear, unambiguous language throughout the letter, and carefully proofread the document for any errors before finalization.

Key Considerations After Writing

After the gift letter has been carefully drafted and signed, several considerations come into play to ensure its validity and manage potential financial implications. Some lenders may request notarization for mortgage gift letters, particularly for certain loan types like FHA loans, or for gifts exceeding a specific amount. Notarization involves signing the document in the presence of a notary public, who then authenticates the signatures.

Both the donor and the recipient should retain copies of the signed and dated gift letter for their personal records. This practice is important for future financial applications, potential audits, or simply to have a clear record of the transaction.

Regarding taxation, the gift tax is typically the responsibility of the donor, not the recipient. For 2025, an individual can gift up to $19,000 per recipient per year without triggering any gift tax reporting requirements or reducing their lifetime exemption. This is known as the annual gift tax exclusion. If a gift exceeds this annual exclusion amount to any single individual, the donor must typically file IRS Form 709, the United States Gift Tax Return.

Even if Form 709 is filed, a gift tax is generally not owed until the donor’s cumulative lifetime gifts exceeding the annual exclusion amount surpass the lifetime gift tax exemption. For 2025, the lifetime gift tax exemption is $13.99 million per individual. This means that most gifts, even those exceeding the annual exclusion, will not result in an immediate tax payment but will instead reduce the donor’s available lifetime exemption. Given the complexity of gift tax laws, consulting with a qualified tax professional is recommended for personalized advice.