A grantor letter is one of two very different documents that happen to share a name. The common one is a mortgage gift letter: a signed statement from someone giving a homebuyer money, confirming the funds are a genuine gift and won’t be repaid. The other is a grantor trust information letter, an annual tax statement a trustee sends to the grantor of a grantor trust showing income that must be reported on the grantor’s personal return. Most people searching this term are dealing with the first kind.
The Mortgage Gift Letter
If a parent, grandparent, or other relative is helping with your down payment, closing costs, or reserves, your lender will require a signed letter from them before funding the loan. The reason is simple. Lenders decide whether you can afford the mortgage by weighing your debts against your income. A $40,000 deposit that turns out to be a private loan changes that math. A gift letter puts the arrangement in writing so the underwriter can treat the money as yours, free and clear.
Under Fannie Mae’s guidelines, gift funds can pay for all or part of the down payment, closing costs, or financial reserves on a principal residence or second home. Gifts aren’t allowed on investment properties. For most one-unit primary residences, the entire down payment can come from a gift even when the loan-to-value ratio is above 80 percent. On two- to four-unit properties, or on second homes above 80 percent LTV, you must contribute at least 5 percent of your own money before gift funds fill in the rest.1Fannie Mae. Selling Guide – Personal Gifts
What the Letter Has to Say
Lenders don’t want a warm note. They want specific facts. For a Fannie Mae-backed loan, the gift letter must state:
- The dollar amount of the gift, or the maximum amount the donor intends to give
- An explicit statement that no repayment is expected or required
- The donor’s name, address, telephone number, and relationship to the borrower
Those three elements are the floor.1Fannie Mae. Selling Guide – Personal Gifts Many lenders also ask for the property address, the date, and the donor’s signature. Include them. A thorough gift letter never slows a closing; a vague one often does.
Who Can Actually Give You the Money
Not just anyone. The restrictions exist so that sellers, builders, or agents can’t quietly route money to a buyer and distort the deal.
For conventional loans, Fannie Mae accepts gifts from relatives by blood, marriage, adoption, or legal guardianship. Non-relatives can qualify if they have a familial-type relationship with the borrower, such as a domestic partner, fiancé, former relative, or someone with a long-standing mentorship-like bond. The donor cannot be the builder, developer, real estate agent, or any other party with a financial interest in the sale.1Fannie Mae. Selling Guide – Personal Gifts
FHA rules are broader. In addition to family, FHA allows gifts from employers, labor unions, close friends with a documented interest in the borrower, charitable organizations, and government agencies running homeownership assistance programs.
Proving the Money Moved
The letter alone doesn’t finish the job. The lender also needs to see the funds actually change hands, which confirms the donor had the money and that it reached you or the closing agent.
Fannie Mae accepts any of these as proof of transfer:
- A copy of the donor’s check with the borrower’s deposit slip
- A copy of the donor’s withdrawal slip with the borrower’s deposit slip
- Evidence of an electronic transfer from the donor’s account to the borrower’s account or the closing agent
- A copy of the donor’s check made payable to the closing agent
- A settlement statement showing receipt of the donor’s funds
If the transfer hasn’t happened before closing, the lender still has to document that the donor gave the funds directly to the closing agent.1Fannie Mae. Selling Guide – Personal Gifts The practical move is to send the money early. Gift funds that have been sitting in the borrower’s account for weeks are easy to verify. Last-minute wires create paperwork and delay closings.
What the Gift Costs the Donor at Tax Time
A gift letter satisfies the lender. It doesn’t satisfy the IRS. Federal gift tax rules apply to the person giving the money. The recipient owes no income tax and no gift tax on what they receive.2Internal Revenue Service. Frequently Asked Questions on Gift Taxes
For 2026, the annual gift tax exclusion is $19,000 per recipient.2Internal Revenue Service. Frequently Asked Questions on Gift Taxes A donor can give that much to as many people as they want in a year with no tax paperwork at all. A married couple can combine their exclusions through gift splitting, effectively giving up to $38,000 per recipient before any filing requirement kicks in.
When a gift to one person exceeds $19,000, the donor has to file IRS Form 709, the gift tax return, even if no tax is actually owed.3Internal Revenue Service. Instructions for Form 709 The excess reduces the donor’s lifetime unified credit, which for 2026 sits at $15,000,000 per individual.4Internal Revenue Service. What’s New – Estate and Gift Tax A parent gifting $50,000 toward a child’s down payment owes no tax. They file Form 709 to report the $31,000 above the exclusion, and that amount comes off their $15 million lifetime exemption. Very few people ever come close to using theirs up.
A Warning on Public Benefits
Gift tax rules and public benefit rules run on separate tracks, and treating them as the same thing is one of the more expensive mistakes families make. A gift that’s tax-free is not invisible to programs like SSI or Medicaid.
SSI has hard resource limits. In 2026 an individual on SSI can hold no more than $2,000 in countable assets, and a couple no more than $3,000. A generous gift that pushes the recipient over that line, even briefly, can knock them off benefits for any month their resources exceed the cap.
Medicaid is a bigger problem for the donor. Most states apply a 60-month lookback when someone applies for long-term care Medicaid. Any gifts made during that window can trigger a penalty period of ineligibility, calculated by dividing the total gifted amount by the average monthly cost of nursing home care in the applicant’s state. A parent who gifts $100,000 toward a child’s home and then needs nursing home care three years later could face months without Medicaid coverage. The federal gift tax exclusion does nothing to shield against this.
The Other Grantor Letter: Trust Income Reporting
The second document that goes by “grantor letter” has nothing to do with a home purchase. It’s a tax reporting attachment used when a trust is classified as a grantor trust, meaning the person who set it up is still treated as the owner of the trust’s assets for income tax purposes.
Because the IRS treats the grantor as the owner, the trust’s income, deductions, and credits all flow through to the grantor’s personal return. The trustee doesn’t put dollar amounts on Form 1041 itself. Instead, the trustee prepares an attachment listing everything the grantor needs to report, and sends the grantor a copy. That attachment is the grantor trust information letter. It has to show the name and identifying number of each person to whom the income is taxable, the specific income items in the same detail they would appear on the grantor’s personal return, and any deductions or credits that apply.5Internal Revenue Service. 2025 Instructions for Form 1041
The filing deadline tracks Form 1041: the 15th day of the fourth month after the trust’s tax year ends. For a calendar-year trust, that’s April 15.6Internal Revenue Service. Forms 1041 and 1041-A – When to File If you’re the grantor of one of these trusts and the letter hasn’t arrived by early spring, ask for it. You can’t file your personal return accurately without the numbers it contains.