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How A Gift Letter Works In Real Estate
‘Tis the season of giving, right? So what if you have a relative, a friend or someone else who you know has found their dream home but just doesn’t have the upfront cash to bring to the closing table? During the holiday season (or really any time) you’re able to help them out financially but do you know how to use the gift money appropriately for your down payment?
Let’s get through the nitty gritty to help you understand what you’re putting forth when “gifting” money.
A mortgage gift letter is a form from you declaring that the funds you’ve gifted are to be used for the down payment.
It shows a mortgage lender that you have no expectation that the money you’ve gifted is to be paid back and is strictly that; a gift.
The lender wants to have full confidence that the money they are loaning out for the mortgage will be met with monthly payments by the borrower and that you (as the donor) will not put stress on the borrower to pay you back for the gift money. That could make the recent borrower more prone to falling behind on their mortgage.
Mortgage lenders prefer that the borrower owe their house to them and no one else.
The gift letter may allow you (the donor) to avoid paying a hefty federal gift tax on the transfer. Without the letter, the IRS could tax the donor for up to 40% on the gift amount.
For more information on how you can gift money for a down payment this holiday season, or if you have been gifted money and want to ensure your safety in the mortgage process we are here to help! We have many lenders we work with closely who can spell out exactly what is needed to make this a smooth transition and a happy home buying process for all parties! Shoot us a message and we will direct you in this process!
Justin was born and raised on the Main Line in Bala Cynwyd, just outside of Philadelphia. He graduated from the University of Delaware with a Bachelor of Science in Marketing. After graduation, Justin....