What is a Gift Letter?

A gift letter is a formal legal statement confirming that funds provided for a home purchase are a gift and not a loan that must be repaid. Because lenders need an accurate picture of your debt-to-income ratio, they must verify that no “under-the-table” repayment is expected.

What Must Be Included?

To be valid, the letter must contain:

• The donor’s name, address, and phone number.
• The property address of the home being purchased.
• The exact dollar amount of the gift.
• The relationship between the donor and the recipient.
• A clear statement that no repayment is expected or required.

How to Document the Transfer of Funds

Lenders are strict about the “paper trail.” You can document the transfer in several ways:

• Direct Wire: The donor wires funds directly to the title company (this often requires the least amount of extra paperwork).
• Check and Deposit: A copy of the gift check alongside a deposit slip showing the funds entering your account.
• Donor’s Proof: A bank statement or withdrawal slip showing the funds leaving the donor’s account.
• Direct to Closing Agent: A check made out directly to the closing agent, including the escrow number.

Gift Rules by Loan Type

Every loan program has slightly different “seasoning” and source requirements:

Conventional Loans (Fannie Mae & Freddie Mac)

• Source: Must come from a relative, employer, close friend, or approved charitable organization.
• Amount: You can use gift funds for the entire 3% minimum down payment on a single-family home.
• Wedding Gifts: Freddie Mac allows wedding gifts from non-relatives if deposited within 90 days of your marriage license date.

FHA Loans

• Minimums: You can cover the entire 3.5% down payment with gift funds.
• Credit Scores: FHA loans are often preferred by those with gift funds because qualification starts at a 580 credit score.

VA & USDA Loans

• VA: Since these often require $0$ down, gift funds are typically used for closing costs. Explore our VA loan options for more details.
• USDA: Gift funds can be used for closing costs for low-to-moderate-income borrowers in rural areas. Learn more about USDA financing.

Tax Implications for the Gifter

It is important to remember that the donor, not the recipient, is typically responsible for any gift taxes.

• Annual Exclusion (2026): An individual can gift up to $19,000 per person without incurring a tax or needing to report it.
• Married Couples: A couple filing jointly can gift up to $38,000 to a single recipient.
• Note: Always consult an accountant for specific tax liability advice.

Quick Reference: Gift Eligibility by Property Type

What is a Gift of Equity?

A gift of equity occurs when a family member sells you their home at a price below market value, “gifting” you the difference in equity instead of cash. This is a common strategy for first-time home buyers looking to reduce their out-of-pocket costs.

• Conventional/FHA: Allowed for family members or domestic partners.
• VA: Not permitted.
• USDA: Allowed only if it reduces the home’s sales price.

Ready to take the next step?

Metropolitan Mortgage has been helping homebuyers in Kansas and Missouri since 1997. Whether you’re using a gift or your own savings, we can help you find the right program.

View Today’s Rates or Apply Online Directly to get started on your Overland Park or Kansas City home journey.