I’ve said it before and I’ll say it again, down payments are one of the most overwhelming parts of buying a home, especially if you are a first-time home buyer. There are so many questions and concerns about if the amount is enough, is it too much, how I can ever save up that much… the list goes on! I know this, and you know this, so it stands to reason that mortgage companies and housing agencies know this too.
There are provisions in place to assist home buyers achieve the down payment requirement for their mortgage, you can see a list of down payment requirements for each type of loan here . One of the wonderful provisions is that there are several programs which allow a home buyer to use gifted funds towards their down payment amount. But proving this money is yours, is not as simple as depositing the gifted amounts into your bank account. When processing your mortgage approval, the underwriter needs to understand the source of any large deposits that show on your bank statements going back 60 days; including deposits from your family and friends to make sure these are gifts and not personal loans that you will be expected to pay back. But how could the underwriter be sure these are gifts and not loans? The gift giver needs to write a gift letter.
This gift letter is intended to state that you are not expected to pay back the gifted amount. Some bits of information that must be included in this letter are; the giver’s name, contact information and relationship to the borrower (you), additionally, the dollar amount of the gift, the date it was given, a statement that repayment is not expected, the address of the property that is to be purchased, and finally, the giver’s signature. Sometimes further evidence is needed by the mortgage lender, including bank statements from the generous family member or friend—it may be helpful for them to be made aware of this upfront.