What's a mortgage gift letter?
A mortgage gift letter is a form from your donor declaring that the down payment funds have been given to you as a gift.
It shows a mortgage lender that you're under no obligation to return the money.
The lender wants to know that when you agree to make your monthly home loan payments, you won’t face the additional financial stress of having to pay back the donor. That could make you more prone to falling behind on your mortgage.
Mortgage lenders prefer that you owe your house to them and no one else.
The donor has to be a close family member, like a parent or a crazy rich uncle, and your lender may require proof that the money has been transferred into your bank account.
Will I get taxed on the money?
There is no “gift tax” in Canada; your donor can give you as much money as they want without incurring any taxes.
In the United States, the limit is $15,000 per year before the tax man gets involved.
Mortgage gift letter template
The letter must include:
- The name of the mortgage borrower.
- The donor's name, address, and phone number.
- The donor's relationship to the borrower.
- How much is being gifted.
- A statement saying that the gift is not to be paid back (after all, then it's not a gift!)
- The new property's address.
Here's a good mortgage gift letter template you can use:
To whom it may concern,
I, John Doe, hereby certify that I will give a gift of $5,000 to Jane Doe, my sister, on Jan. 1, 2020 to be applied toward the purchase of the property at 123 Main Street.
I certify that this payment is a gift and that there is no obligation, either expressed or implied, of repayment. No part of this gift was provided by a third party with an interest in buying the property, including the seller, real estate agent and/or broker.
I have given the gift from the account listed below, and have attached documentation to confirm that the money was received by the applicant prior to settlement.
The source of this gift is:
[Type of account]
[Name of financial institution]
321 Avenue Street
(123) - 456 - 7890