Gift Letter
Sometimes buyers receive assistance from relatives in coming up with down payment money when purchasing a home. This practice is relatively common, and is often acceptable, but needs to be handled in the right way. Simply put there needs to be a paper trail for a lender to follow and that trail needs to be documented well to avoid any unforeseen issues when the loan is processed.
If you are planning on getting a gift please follow these basic steps:
Step 1 Write a Gift Letter:
The letter should contain the following information:
Here's a Sample letter:
Date:
To: [name and address of bank or lender]
I/We [name of gift-giver(s)] intend to make a GIFT of $ [dollar amount of gift] to [name(s) of recipient(s)] , my/our [relationship, such as daughter] , to be applied toward the purchase of property located at: [address of the house you’re buying] .
There is no repayment expected or implied in this gift, either in the form of cash or by future services, and no lien will be filed by me/us against the property. I/We are immediate relative(s) if the gift receiver and no part of the financial gift is being provided by any third party having any direct or indirect interest in the purchase and/or sale of the subject property listed in this letter.
The SOURCE of this GIFT is: [the name of the bank and account number the gift is coming from] .
Signature of Gift Giver(s): ________________________________________
Print or Type Name of Gift Giver(s): ________________________________________
Address of Gift Giver(s): Street, City, State, Zip: ________________________________________
Telephone Number of Gift Giver(s): _______________________________________
Signature of Gift Receiver(s): ________________________________________
Print or Type Name of Gift Receiver(s): ________________________________________
Step 2 Gift Giver Instructions:
First the Gift Giver will need to document their ability to give the gift. The gift can come from a bank account, stock sale, or other funds but this process must be documented. For example, if a gift giver needs to transfer money from one account to another to write the check statements from BOTH accounts will be needed to document the source of the funds.
Second the Gift Giver will need to write a check to the home buyer/gift receiver for the EXACT dollar amount identified in the gift letter. Make a photocopy of the check and keep it with the gift letter. Please do not wire the funds, it becomes far more complicated to track a wire that a written check.
Step 3 Gift Receiver Instructions:
Gift Receiver will need to document their process in receiving the gift. Take the check to your bank where you will be funding your closing expenses. Deposit that check and ONLY that check in a single transaction. Get a receipt for your transaction and put this receipt with your other gift documents (copy of check, gift letter, proof of ability documents, et al.)
If you are receiving multiple gifts you need to follow this process for each individual gift. Make separate deposits, get separate checks, have individual copies of each paper trail.
Special Notes: Giving gifts can have tax implications for both the gift giver and receiver. Please contact a tax professional regarding these potential issues.
If you are planning on getting a gift please follow these basic steps:
Step 1 Write a Gift Letter:
The letter should contain the following information:
- Amount of the Gift
- Address of the property being purchased
- Relationship of the person giving the gift to the person receiving the gift
- Statement identifying the money as a gift and not a loan, expressing it will not be repaid
Here's a Sample letter:
Date:
To: [name and address of bank or lender]
I/We [name of gift-giver(s)] intend to make a GIFT of $ [dollar amount of gift] to [name(s) of recipient(s)] , my/our [relationship, such as daughter] , to be applied toward the purchase of property located at: [address of the house you’re buying] .
There is no repayment expected or implied in this gift, either in the form of cash or by future services, and no lien will be filed by me/us against the property. I/We are immediate relative(s) if the gift receiver and no part of the financial gift is being provided by any third party having any direct or indirect interest in the purchase and/or sale of the subject property listed in this letter.
The SOURCE of this GIFT is: [the name of the bank and account number the gift is coming from] .
Signature of Gift Giver(s): ________________________________________
Print or Type Name of Gift Giver(s): ________________________________________
Address of Gift Giver(s): Street, City, State, Zip: ________________________________________
Telephone Number of Gift Giver(s): _______________________________________
Signature of Gift Receiver(s): ________________________________________
Print or Type Name of Gift Receiver(s): ________________________________________
Step 2 Gift Giver Instructions:
First the Gift Giver will need to document their ability to give the gift. The gift can come from a bank account, stock sale, or other funds but this process must be documented. For example, if a gift giver needs to transfer money from one account to another to write the check statements from BOTH accounts will be needed to document the source of the funds.
Second the Gift Giver will need to write a check to the home buyer/gift receiver for the EXACT dollar amount identified in the gift letter. Make a photocopy of the check and keep it with the gift letter. Please do not wire the funds, it becomes far more complicated to track a wire that a written check.
Step 3 Gift Receiver Instructions:
Gift Receiver will need to document their process in receiving the gift. Take the check to your bank where you will be funding your closing expenses. Deposit that check and ONLY that check in a single transaction. Get a receipt for your transaction and put this receipt with your other gift documents (copy of check, gift letter, proof of ability documents, et al.)
If you are receiving multiple gifts you need to follow this process for each individual gift. Make separate deposits, get separate checks, have individual copies of each paper trail.
Special Notes: Giving gifts can have tax implications for both the gift giver and receiver. Please contact a tax professional regarding these potential issues.