Gift letters are used to show proof that a sum of money or a valuable item was donated to an individual and payment is not required from the recipient. Gift letters are used as proof for individuals to submit to lenders, the Internal Revenue Service or creditors if requested to identify that a debt does not exist as a result of the gift.
A gift letter is often required when a friend or relative provides money to help the borrower purchase a home or make a down payment. Banks or lenders typically require written documentation that states that the money is not a loan. The gift letter should be written by the person gifting the money and should clearly state that the money has been provided without any stipulations or requirements from the borrower, such as repayment or a lien on property.
The gift letter should also outline the amount of money transferred to the borrower, the giftor's relationship to the buyer, and name and address. Gift letters should indicate the property the gift may be used to purchase. Lenders may also request that people gifting money note how they have obtained the funds to gift to ensure the money was not retrieved from a personal or business loan.