When is a "Gifting Letter" needed while applying for a mortgage?

Since the financial meltdown of 2008, it is far more difficult to obtain a home mortgage loan. Recent estimates are that twenty-five percent of all first time buyers do not have sufficient funds in order to qualify for a loan, and seek other sources. With interest rates for a conventional loan at twenty percent (somewhat less for FHA loans) many first time buyers turn to family members for financial assistance for help with the down payment.

Lending institutions scrutinize monetary gifts from others very closely. They must be certain that the gift is not actually a hidden loan which could imperil the borrower’s ability to make the payments on the primary mortgage. It is extremely important to understand that full disclosure pertaining to the gift must be given to the lender, or questions of mortgage fraud could surface. Therefore, the answer to the main question posed in this article is as follows: Always disclose a gift from others when it is used for the purpose of making a down payment on the purchase of a home. 

Lending institutions look askance at gifts from others who do not have a close familial relationship. Monetary donations from long-time friends, co-workers, neighbors, and distant cousins normally are scrutinized and often disallowed. Gifts from parents, grandparents, brothers or sisters are not as problematic. 

The bank will want to see documentation, so both the donor and donee will need to show financial records tracing the transaction directly from the donor’s account to that of the donee. Furthermore, the amount of the gift should not be changed during the entire process. 

There could be gift tax implications, but there are legal ways of ameliorating the amount. For example, if a newlywed husband and wife are the borrowers, then the individual parents of one of them can make separate gifts to each of them for a total of four gifts. It would be wise to consult with a tax attorney or a certified public accountant when a gift is being made. 

For an excellent article on gifting letters visit:  http://www.fhmtg.com/download/GiftLetterInstructions.pdf