Gift Letter

What It Means

A gift letter is a written, signed statement from a donor confirming that funds provided to a borrower for a home purchase are a genuine gift with no expectation of repayment. Mortgage lenders require gift letters to verify that gifted funds do not create a hidden debt obligation that would affect the borrower's Ability to Repay the loan.

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In co-buying, gift letters arise when a family member or other party contributes funds toward the Down Payment or Closing Costs on behalf of one or more Co-borrowers. The letter must typically include the donor's name and relationship to the borrower, the gift amount, the property address, and a statement confirming no repayment is expected.

How Gift Letters Work for Co-buyers

Lender requirements for gift letters vary by loan program. Conventional loans, FHA loans, and VA loans each have different rules about who can give a gift, how much can be gifted, and what documentation is required. In a co-buying arrangement, the complexity increases when gifts flow to different co-borrowers from different donors — each gift may require its own letter and paper trail, depending on lender and program requirements.

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The lender may also require a bank statement from the donor showing the source of the gifted funds, as well as evidence that the funds have been transferred to the borrower's account. Co-buyers should coordinate with their loan officer early to understand exactly what documentation is needed for each gift.

Why It Matters for Co-owners

When a gift funds part of one co-buyer's Capital Contribution, the group should clarify how that contribution is treated in the Co-ownership Agreement. A gift to one co-buyer that increases their down payment contribution may justify a larger ownership percentage — or the group may agree that the gift benefits all parties equally. Either approach is valid, but the decision must be explicit.

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Gifted funds that are not properly documented can delay or derail the loan. Co-buyers should ensure all gifts are identified, documented with proper gift letters, and disclosed to the lender well before closing.

Key Points

• A signed document confirming that funds for a home purchase are a gift, not a loan
• Required by lenders to verify the borrower's true debt obligations
• Must include donor information, gift amount, property address, and no-repayment statement
• In co-buying, multiple gifts to different co-borrowers may each require separate documentation
• The Co-ownership Agreement should clarify how gifted funds affect ownership percentage and equity allocation
• Undocumented gifts can delay or jeopardize loan approval