A gift letter for a mortgage is a signed statement from whoever is giving you money toward your down payment or closing costs, confirming that the funds are a true gift and that you owe nothing in return. Lenders require one any time a third party contributes to your home purchase, because an undisclosed loan would quietly raise your debt load and change the math on your approval. The letter itself is short, but the rules around who can sign it, what it must say, and how the money must move are strict enough that a small error can push back your closing.
What the Letter Has to Say
Fannie Mae’s selling guide sets the baseline content every gift letter needs, and most lenders apply the same standard across loan types. The document must state the dollar amount of the gift, include an explicit statement from the donor that no repayment is expected, and identify the donor by name, mailing address, phone number, and relationship to you.1Fannie Mae. B3-4.3-04, Personal Gifts
Most lenders also want the property address on the letter, and many hand you a template through your loan officer. The donor signs. Fannie Mae’s rule requires the donor’s signature; the borrower’s signature is not mandated in the guidelines, though some lenders add it as an overlay.
The no-repayment line is the single most important sentence in the document. Without it, an underwriter has no basis to treat the deposit as anything other than a possible debt, and the letter will come back for correction. A note that says “I’m giving my daughter $30,000 for her house” is not enough on its own; the specific language about no expectation of repayment has to be there in writing.
Who Can Give You the Money
Each loan program defines its own list of acceptable donors, and the categories do not line up neatly across programs.
Conventional Loans
Fannie Mae allows gifts from a relative, defined broadly to include anyone related by blood, marriage, adoption, or legal guardianship, and from a non-relative in a familial-type relationship such as a domestic partner, fiancé, or long-standing mentor.1Fannie Mae. B3-4.3-04, Personal Gifts The donor cannot be the builder, developer, real estate agent, or anyone else with a financial interest in the transaction.
FHA Loans
FHA guidelines cast a wider net. Acceptable donors include a relative, the borrower’s employer or labor union, a close friend with a clearly documented interest in the borrower, a charitable organization, or a government agency running a homeownership assistance program.2Department of Housing and Urban Development (HUD). HUD 4155.1 Chapter 5, Section B – Acceptable Sources of Borrower Funds The “close friend” category is where borrowers get tripped up: the relationship has to be documented, not just asserted.
VA Loans
VA loans do not require a down payment in most cases, but gift funds can still be used for closing costs or the VA funding fee. The VA Buyer’s Guide allows family members to provide gift funds, and the donor must not be involved in the sale of the property.3Department of Veterans Affairs. VA Home Loan Guaranty Buyer’s Guide
What the Money Can Be Used For
Gift funds are not accepted for every kind of purchase. Under Fannie Mae’s rules, gifts are allowed for a principal residence or second home and are prohibited for investment properties.1Fannie Mae. B3-4.3-04, Personal Gifts
How much of the down payment can come from a gift depends on the property type and loan-to-value ratio. For a one-unit principal residence, Fannie Mae requires no minimum contribution from your own funds regardless of LTV, meaning the entire down payment can be gifted. For a two-to-four-unit principal residence or a second home where the LTV is above 80%, you have to put in at least 5% of your own money before gift funds can supplement the rest.1Fannie Mae. B3-4.3-04, Personal Gifts FHA loans likewise permit 100% of the down payment on a primary residence to come from gift funds.
There is one useful exception. If the donor has lived with you for the past 12 months and will also live in the home as a primary residence, Fannie Mae treats the gift as your own funds, and it can satisfy the minimum borrower contribution even for a multi-unit or second-home purchase.
Gift of Equity Is Different
A gift of equity is not a cash transfer. It happens when a family member sells you a home for less than its appraised value and formally credits you the difference. If a parent sells you a home appraised at $300,000 for $250,000, the $50,000 gap can serve as your down payment or cover closing costs.4Fannie Mae. B3-4.3-05, Gifts of Equity Fannie Mae permits gifts of equity for principal residences and second homes, and a gift letter is still required. The gift of equity cannot count toward financial reserves.
The Paper Trail Beyond the Letter
The signed letter is one piece. The lender also needs documentation showing the money actually moved from the donor’s account to yours or to the closing agent, and the specific paperwork depends on how the funds were transferred.
- If the gift funds are already in your account, the lender needs a copy of the donor’s withdrawal document plus your deposit slip and bank statement showing the deposit.
- For a certified check delivered at closing, the lender needs the donor’s bank statement showing the withdrawal and a copy of the certified check.
- For a cashier’s check or money order, the donor provides a withdrawal document or canceled check proving the funds came from a personal account.
- For a wire transfer sent directly to the closing agent, the donor provides documentation of the wire.2Department of Housing and Urban Development (HUD). HUD 4155.1 Chapter 5, Section B – Acceptable Sources of Borrower Funds
The underlying rule is the same in every scenario: a direct, documentable line from the donor’s bank account to your account or the escrow company. If the donor withdrew cash and you deposited cash with no matching records, that chain is broken and the underwriter will flag it.
The donor’s side of the paperwork has to hold up on its own, too. If the letter says $20,000 but the donor’s statement shows a $20,000 withdrawal from an account that held only $18,000 two weeks earlier, the underwriter will start asking where the donor’s money came from.
One more trigger to know about: under FHA guidelines, any single deposit larger than 50% of your total monthly effective income sets off additional documentation requirements regardless of whether a gift letter is on file.5HUD. FHA Single Family Housing Policy Handbook
Taxes Are the Donor’s Problem, Not Yours
You do not owe income tax on money received as a gift. The tax side sits entirely with the donor, and for most down payment gifts it means paperwork rather than an actual bill.
For 2026, the annual gift tax exclusion is $19,000 per recipient.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A donor can give up to that amount to any individual without filing a gift tax return, and a married couple electing to split gifts can double it to $38,000 per recipient. If the gift is larger, the donor has to file IRS Form 709, which does not necessarily mean tax is owed; it simply reduces the donor’s lifetime exemption.7Internal Revenue Service. Instructions for Form 709
The lifetime federal gift and estate tax exemption for 2026 is $15,000,000, up from $13,990,000 in 2025 following changes made by the One, Big, Beautiful Bill.8Internal Revenue Service. What’s New – Estate and Gift Tax In practice, almost no down payment donor ends up owing tax. The point worth passing along to a parent writing you a check for $25,000 or $50,000 is the filing requirement, which many donors do not know exists.
Mistakes That Delay Closing
Underwriters see the same problems again and again, and most are avoidable with a little planning.
Depositing the money before getting the letter. A large deposit with no documentation is unverified funds. At best it triggers follow-up requests; at worst the deposit is excluded from your qualifying assets and your loan amount has to change.
Leaving out the no-repayment statement. The donor’s intent may feel obvious, but underwriters need the specific language in writing. Without it the letter comes back.
Using a donor who does not qualify. A generous friend who does not meet the familial relationship standard for a conventional loan, or anyone with a financial interest in the sale, disqualifies the gift. Clear the donor with your loan officer before the money moves.
An incomplete paper trail on the donor’s side. The donor’s own bank records have to show where the gift money came from, not just that it left the account.
Waiting until the last minute. Gift documentation is reviewed during underwriting, and a problem surfaced days before closing puts the deal at real risk. Get the letter signed, the transfer completed, and the supporting statements assembled as early as your loan officer suggests.