Gift Letter

A gift letter is a written statement from the donor (the person giving money toward your down payment) confirming: (1) the amount gifted; (2) the relationship between donor and recipient; (3) that the funds are a genuine gift and no repayment is expected or required; (4) the property address for which the gift will be used. Lenders require gift letters because borrowed down payments are prohibited — a down payment funded by a loan misrepresents the borrower's equity and risk profile. The CFPB mortgage application guide explains what lenders verify about down payment sources.

A complete gift letter must include: (1) Donor's full legal name and contact information; (2) Donor's relationship to the borrower (parent, grandparent, sibling, etc.); (3) Dollar amount of the gift; (4) Date funds were or will be transferred; (5) Property address (the home being purchased); (6) Explicit statement that the funds are a gift and will not be repaid; (7) Donor's signature (and often the borrower's signature); (8) Donor's bank statement showing the gift funds in their account (required by most lenders). Many lenders provide a template — ask your lender or mortgage broker for their specific form rather than creating one from scratch.

Eligible gift donors vary by loan type: Conventional (Fannie/Freddie): gifts from family members, domestic partners, fiancé(e)s, and household members. Employers, charities, and non-profits may give gifts if not disguised as grants with repayment conditions. FHA loans: gifts from family, employer, labor union, charitable organization, or a close friend with a "clearly defined interest" in the borrower. VA loans: gifts from family members. Government down payment assistance programs may also be used. Fannie Mae gift funds eligibility (B3-4.3-04).

Under CMHC insured mortgage guidelines, gifted down payments must come from an immediate family member: parent, grandparent, sibling, child, or legal guardian. Third-party gifts (employers, friends, non-family) are not eligible as the sole source for an insured mortgage. The gift must be: accompanied by a signed gift letter, confirmed with the donor's bank statement, and the funds must typically be in the borrower's account for 90 days before closing (90-day seasoning rule). Non-repayment must be explicit — any arrangement where the donor expects money back is considered a loan, not a gift. CMHC gifted down payment rules.

Lenders and mortgage insurers require that down payment funds be "seasoned" — in the borrower's account for at least 90 days before the mortgage application or closing. Funds that arrived recently raise questions about whether they are truly a gift or a short-term loan. For gift funds: in Canada, CMHC requires the gift to be in the borrower's account for 90 days if the donor cannot document the source (e.g., if the donor's account statement isn't provided). If the donor's account statement clearly shows the gift originated from the donor's own savings (not a loan), and both donor and recipient provide statements, recent transfers may be accepted. In the US, Fannie Mae allows documented recent gifts with the donor's bank statement showing the withdrawal. Always confirm the exact requirement with your lender before moving funds.

In the US: yes — gift funds can cover closing costs as well as the down payment on conventional and FHA loans. The same gift letter requirements apply. On VA loans, gift funds can cover anything except the required funding fee. In Canada: gift funds are typically designated for the down payment specifically. Additional cash for closing costs (land transfer tax, legal fees) must generally come from the borrower's own verified funds — though there is no hard prohibition against family gifts covering closing costs if properly documented. Always confirm with your specific lender and insurer (CMHC, Sagen, or Canada Guaranty). Read the full gift funds guide for more detail.