What is A Gift Letter in Real Estate

What is A Gift Letter in Real Estate

If you're buying a home, you may have heard the term "gift letter" tossed around. But what exactly is a gift letter, and how does it relate to the home buying process? In this article, we'll break down everything you need to know about gift letters in real estate.

Let’s get into it!

First things first: What is a gift letter?

A gift letter is simply a document that outlines a monetary gift from one party to another. In the context of real estate, a gift letter is often used when a home buyer is receiving a financial gift from a family member or friend to help cover the down payment or closing costs of a home.

Why would someone use a gift letter in real estate?

There are many reasons why someone might use a gift letter in real estate. For one, a gift letter can help a home buyer qualify for a mortgage by showing that they have additional funds to put towards the purchase. Additionally, a gift letter can help a home buyer who may not have enough savings to cover the down payment or closing costs on their own.

It's important to note that if you are using a gift letter to help finance your home purchase, the funds must be a true gift, meaning that the giver is not expecting repayment. If the funds are a loan, it could impact your ability to qualify for a mortgage.

What should be included in a gift letter?

If you're giving or receiving a monetary gift for a home purchase, it's important to have a clear and concise gift letter. Here are some things that should be included in the letter:

• The name of the giver and their relationship to the home buyer.

• The amount of the gift.

• A statement that the funds are a true gift, and that no repayment is expected.

• The address of the property being purchased.

• The date the gift was given or will be given.

• The signature of the giver.

Some lenders may also require additional documentation, such as bank statements, to show that the funds have been transferred from the giver to the home buyer.

Who should write the gift letter?

The gift letter should be written by the giver of the gift. It's important that the letter is written clearly and accurately, as any mistakes could cause delays in the home buying process.

It's also important to note that the letter should be signed and dated by the giver. If the giver is unable to sign the letter in person, they may be able to sign a digital version of the letter.

What happens if a gift letter is not provided?

If you're using gift funds to help finance your home purchase, it's important to provide a gift letter to your lender. If a gift letter is not provided, it could impact your ability to qualify for a mortgage.

Additionally, some lenders may require that the gift funds be in your account for a certain period before they can be used towards your home purchase. This is known as seasoning. If you don't provide a gift letter and can't show that the funds have been in your account for the required length of time, it could delay or even derail your home purchase.

The Bottom Line

A gift letter is an important document that should not be overlooked when using gift funds to help finance a home purchase. By including all the necessary information and making sure the letter is signed and dated, you can help ensure a smooth home buying process. If you have any questions about gift letters or the home buying process in general, don't hesitate to reach out to a trusted mortgage professional.

Want to know more about gift letters and how they could affect your buying power? Contact one of our Southern Trust Loan Officers today!