There are a lot of options when it comes to acquiring home financing, but one of the best things to fall into one’s lap is a gift letter. Although one could actually use any gifted money for whatever purpose they wish, it can be very useful for obtaining a mortgage.
If you’ve just received one yourself, or you might be planning to send one to a person, read on to learn more about what a gift letter is and how to use it for a mortgage.
What is a Gift Letter?
A gift letter is basically written confirmation that someone writes when they send a large sum of money without expecting it to be paid back. This ensures that, legally speaking, all parties ascertain that the money given is not a loan but, as the name states, a gift. This statement is important as it assures any lender that the money is not a debt that will affect the recipient’s existing financial responsibilities.
It’s also important to note that actual loans given under the guise of being a gift with a letter are considered fraudulent and are punishable by law. Gift letters don’t need notarization, but they do need to be signed by both the sender and the recipient to be valid.
A gift letter must have the donor’s complete name, address, and contact information, their relationship with the recipient, the address of the property under the mortgage, the actual amount given in dollars, and the date of transfer.
How Can A Gift Letter Be Used For Mortgage?
It should be noted that a gift letter and the funds that go along with it can only legitimately be used for a mortgage down payment if the present comes from family. This is not limited to blood relatives as any (present or future) in-laws, stepfamily, and partners recognized by the law are considered family for this transaction. This applies if you are trying to get a conventional loan.
If you’re applying for an FHA loan, any cousins, nieces, and nephews aren’t allowed to gift you the money under the same family guidelines as a conventional loan. That said, they or any close friends can provide the gift. They can clearly express their connection to you and your life. Under those guidelines, even an employer or union can fund the gift.
Under FHA guidelines, you can also receive a gift letter and money from any charitable organization, government body, and assistance programs for first-time and low-income home buyers.
For a VA loan, you are pretty much free to receive monetary gifts from anyone as long as they are not directly tied to benefit from the purchase. This means the home seller, any contractors and builders, developers, and realtor cannot provide the gift letter.
