What the letter says
A gift letter names the donor, the borrower and the amount, states the donor's relationship, says the funds are a gift that need not be repaid, and identifies the property. It carries the donor's signature and sometimes the borrower's. Lenders often provide their own form.
Use the lender's wording if they supply one.
Does it need a notary?
Not always. Some lenders accept an ordinary signed letter, and others ask that the donor sign before a notary. The lender decides, and the notary does not. When a notary is used, the donor shows ID and signs in front of them, and the notary completes the certificate.
Ask your loan officer before spending time on an appointment.
Tracing the money
Lenders usually want bank statements showing the funds leaving the donor and arriving in the borrower's or the title company's account. Large deposits that are not explained can hold up approval. Transfer the gift early, and keep records of each step.
Avoid giving cash, which is difficult to document.
Rules that vary by loan type
Programs differ in which relatives may give and how much of the down payment can be a gift. Check the current guidelines with your lender. Do not assume your cousin or friend qualifies as a donor.
Gifts that are really loans must be disclosed as debt.
Taxes and honesty
Large gifts can have federal gift tax filing implications for the donor, though many gifts need no tax to be paid. Ask a CPA or enrolled agent. Never sign a gift letter if repayment is expected, since a false statement to a lender can be a serious problem. If the donor lives elsewhere, a local mobile notary or an approved remote notarization can handle the signature, and the original goes back to the lender.
What underwriters look for and common gift letter mistakes
Underwriters want to see that the donor has the funds, that the transfer is documented, and that no repayment is expected. If the donor cashes a large check or withdraws cash, the paper trail breaks. They may ask for the donor's bank statement or a copy of the wire.
Answer requests quickly. A delay in documenting the gift can delay closing.
Wrong amount, missing property address, a blank donor relationship, an unsigned letter or a date after closing. Another mistake is sending the gift to the wrong account. Use the lender's form if they have one and double-check before the donor signs. If a notary is used, the donor signs only in front of the notary, never earlier.
Close family members are the usual donors, but programs differ, so confirm the donor qualifies before moving money. If the donor is far away, they can sign before a local notary and send the original by tracked mail. Ask the lender whether a scan will be accepted first, and whether the original is needed for the file.
Common questions
Can the donor sign electronically?
Sometimes. The lender decides whether an e-signature is acceptable for the letter.
Who holds the original?
Usually the lender or title company keeps it in the file. Keep a copy yourself.
How soon should the gift arrive?
As early as possible. Ask your lender about their rule for the timing of funds.
This guide is general information, not legal advice. Fees and procedures change; check with the office involved or an attorney for your situation.