What Is a Gifted Deposit? Requirements for a Mortgage

A gifted deposit refers to money provided to a homebuyer as a genuine gift, typically for a down payment on a property. This financial assistance is particularly common among first-time homebuyers who may find it challenging to save the substantial funds needed for a deposit. The defining characteristic of a gifted deposit is that it is a true gift, meaning there is no expectation or requirement for repayment from the recipient to the donor. This arrangement helps individuals secure a mortgage without incurring additional debt.

Understanding Lender Requirements

Mortgage lenders carefully scrutinize gifted deposits to ensure the financial stability of the borrower and to comply with anti-money laundering regulations. Lenders need clear assurance that the funds are indeed a gift and not a disguised loan, as an undisclosed loan would misrepresent the borrower’s financial standing, impact their debt-to-income ratio, and create an unmanageable debt burden. Therefore, they establish specific criteria for accepting gifted funds.

Lenders require the gifted funds to come from a close relative, such as a parent, grandparent, sibling, or sometimes a fiancé or domestic partner. Funds from unrelated parties, or those with a financial interest in the property sale like real estate agents or builders, are not permitted. This restriction helps prevent potential conflicts of interest and ensures the gift is legitimate. The donor must also demonstrate that the funds originate from a legitimate source, often by providing bank statements to show the money’s history and transfer.

The amount of a gifted deposit can influence lender requirements for the borrower’s own contribution. For conventional loans, if a borrower puts down 20% or more, 100% of the down payment can be gifted. However, if the down payment is less than 20%, lenders may require a portion of the funds to come from the borrower’s own savings. Gifted funds are not permitted for the purchase of investment properties, as these loans have different risk profiles for lenders.

Required Documentation and Submission Process

Formalizing a gifted deposit for a mortgage application involves specific documentation to satisfy lender requirements. The primary document is the “gift letter,” which formally declares the nature of the funds. This letter includes the donor’s full name, address, contact information, and their relationship to the recipient. It specifies the exact gifted amount and states that the money is a non-repayable gift with no expectation of repayment.

The gift letter also identifies the property address for which the funds are intended and includes the date of the fund transfer. Both the donor and the recipient are required to sign and date the letter, confirming their agreement to its terms. While notarization is not a mandatory requirement for a gift letter, lenders may provide their own templates for this document, which should be used if available.

In addition to the gift letter, lenders require bank statements from both the donor and the recipient. The donor’s statements, covering the last 30 to 60 days, must show the origin of the funds and the transfer out of their account. Similarly, the recipient’s bank statements, for the last 60 days, must reflect the receipt of the gifted funds and their “seasoning” within the account. While ideal for funds to be in the recipient’s account for at least 60 days before application, funds received closer to the application date may be accepted with additional documentation. The gift letter and bank statements are then submitted to the mortgage lender or conveyancer as part of the overall mortgage application package.

Potential Tax Considerations

When a gifted deposit is involved, both the recipient and the donor should understand the potential tax implications, which differ for each party. For the recipient, a gifted deposit is not considered taxable income, meaning the individual receiving the gift does not owe federal income tax on the amount. This is because gifts are excluded from gross income for the recipient under federal tax law.

For the donor, federal gift tax rules come into play, although most gifts for a mortgage down payment do not result in an actual tax payment. The Internal Revenue Service (IRS) provides an annual gift tax exclusion, which allows an individual to give a certain amount to any number of people each year without incurring gift tax or reporting requirements. For 2025, this annual exclusion is $19,000 per recipient.

If a gift exceeds this annual limit, the donor is required to file IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. Even if a gift exceeds the annual exclusion, it does not result in immediate gift tax owed. This is due to the lifetime gift and estate tax exemption. For 2025, the lifetime exemption is $13.99 million per individual. Any amount gifted above the annual exclusion reduces this lifetime exemption, but actual gift tax is only paid if the donor exceeds this lifetime limit over their entire gifting history.

The donor, not the recipient, is responsible for any potential gift tax. Individuals should consult a qualified tax professional for personalized advice regarding their specific financial situation and any potential state-level considerations.