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Gift letter

If you’re unable to muster up a full home loan deposit yourself, your parents or guardian may be able to chip. If so, you'll need to provide your lender with a gift letter or statutory declaration.

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Some home buyers struggle to save the money for a house deposit. But if you're in a fortunate enough position, your parents could help you with part of the deposit as a gift. Many lenders will accept this but may require a gift letter to support the application.

What is a gift letter?

Provided by a parent, guardian or close relative such as your grandparents, a gift letter confirms that someone is providing you with the funds to complete a deposit for a home loan. The gift letter must state that the deposit is an “unconditional” gift. Generally, it should not be repayable (some lenders may make an exception for this).

Most lenders require the gift to be held in the account for a minimum of three months prior to purchase application approval, particularly if you have less than 20% of the deposit saved up.

Why do lenders require a gift letter?

In some cases, lenders will need to confirm the source of your deposit to ensure that you are not sourcing the funds from credit cards, a personal loan or any other form of finance. In other words, the lender wants to make sure that you have not taken out another form of finance and won’t become preoccupied with servicing other debts.

What does the process involve?

legal letterIf your parent or family member has agreed to gift you the deposit for a home loan, you will need to approach your lender to see whether or not a gifted deposit will be accepted. If so, you’ll need to provide the lender with a standard gift letter, an example of which is detailed below.

Most borrowers need to show proof of at least 5% in genuine savings, such as regular deposits from a salary over a period of no less than three months. The lender will ask to see recent bank statements as evidence of due diligence and financial discipline. If the lender doesn’t believe you can demonstrate financial discipline and the ability to put money away, you may be charged a higher interest rate or your application may be denied.

What does a gift letter look like?

Australian lenders have strict requirements about what needs to be included in the gift letter, including but not limited to:

  • Correct date and signatures.
  • Name of the gift-giver and the recipient.
  • The gift amount.
  • Confirmation that the gift is “unconditional”.
  • Confirmation that the gift is “non-repayable” and “non-refundable”, or confirmation otherwise of how the loan (not gift) will be repaid.

02/01/2016

To whom it may concern,

Re: Natasha Gyles

I confirm that I am giving my daughter Natasha Gyles an unconditional gift of $65,000 for her to use to buy a property located in Mona Vale, NSW. I confirm that this gift is non-repayable and non-refundable.

Should you require any additional information regarding this gift, please do not hesitate to contact me on 02 XXX XXXX.

Regards,

(parent signature)

Mitchell Gyles

1 York St

Sydney NSW 2000

You should speak to your lender or broker about any other steps required to ensure the acceptance of your gift letter.


What is a statutory declaration?

Alternatively, some lenders may specifically request a statutory declaration to confirm the gifted deposit. An example of a statutory declaration form is detailed below.

A bank will often ask for a statutory declaration as a precautionary measure to ensure that the gifted deposit is being provided by a family member, that it is “unconditional” and preferably “non-repayable.”

Learn more about filling out a statutory declaration.

Will I have to pay lender’s mortgage insurance (LMI)?

If your gifted deposit is less than 20% loan-to-value ratio (LVR), you may need to pay LMI. However, it’s likely that you’ll be able to capitalise LMI into your loan (or add the premium to your total loan).

For instance, if you have to pay an LMI premium of $7,400 and your loan is $620,000, your lender might allow you to borrow $627,400.

Enter your details in the calculator below to work out how much you can afford to borrow.

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Which lenders will accept a gifted deposit?

While some lenders will not lend funds to borrowers who have received their deposit money as a gift, there are several Australian lenders, such as the Commonwealth Bank of Australia and ING Direct, that will accept a gifted deposit for your loan application.

It’s important to note if you borrow the deposit from your parents and intend to repay the amount later, this is considered a loan and not a gift. Some lenders won’t accept this type of loan arrangement.

Tips for applying for a home loan with a gift letter

  • Apply with a lender that views borrowers with gifted deposits as low-risk borrowers.
  • Consider whether the gift jeopardises the financial position of the gift giver.
  • Ensure that the gift giver seeks independent financial advice to see whether or not they are in a position to provide the unconditional gift.
  • Carefully review the terms and procedures of the lender on how to provide a gift letter and/or a statutory deposit.
  • Include as much detail as possible in your gift letter or statutory declaration regarding the loan purpose and any other relevant information.
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Frequently asked questions about gift letters

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