If a relative or friend will be giving you money to help make a down payment on or purchase a house, your bank or other institutional lender will likely require some type of written documentation that the money is in fact a gift, not a loan.
The reason is that, if it's a loan, you will be deeper in debt than the lender had earlier calculated. In that case, you might no longer qualify for the same loan terms the bank had offered, or perhaps any loan at all. (Learn more about mortgage requirements.)
Here's a sample gift letter you can use to prove that the money is truly meant as an outright gift, with no expectation of repayment.
Before finalizing the letter, check with your lender to make sure that it includes all information required, such as evidence of the donor's ability to provide these gift funds.
To: [name and address of bank or lender]
I/We [name of gift-giver(s)] intend to make a GIFT of $ [dollar amount of gift] to [name(s) of recipient(s)] , my/our [relationship, such as son or daughter], to be applied toward the purchase of property located at: [address of the house you're buying, if known] .
There is no repayment expected or implied in this gift, either in the form of cash or by future services, and no lien will be filed by me/us against the property.
The SOURCE of this GIFT is: [describe the investment, bank, or other account the gift is coming from] .
Signature of Donor(s): _____________________________
Print or Type Name of Donor(s):
Address of Donor(s): Street, City, State, Zip:
Telephone Number(s) of Donor(s):
Email Address of Donor(s):
If a financial gift is large enough, the giver might have to file a gift tax return with the IRS (though they won't pay actual tax during their lifetime; it's assessed against their estate after death, and they might end up owing nothing at all; learn more about The Federal Gift Tax).
There's an annual exclusion, however, currently $17,000 per person per year (2023). In other words, that amount can be given without having to file a gift tax return. So, for example, every year your mother and father could give you and your partner a total of $68,000 without them having to submit a gift tax return to the IRS.
For more information on raising a down payment and financing your house purchase, see Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, J.D., and Attorney Ann O'Connell.