For many aspiring homeowners in Colorado, the dream of buying a home can feel financially out of reach, especially with rising property values. This is where the generosity of family or close friends can play a pivotal role, offering a vital financial boost in the form of gifted money for a down payment or closing costs. However, many are unaware that utilizing gifted funds in a mortgage transaction isn't as simple as a direct transfer, and mishandling it can lead to significant delays or even denial of your loan.

The implications of not understanding the strict requirements for gifted funds are substantial, potentially jeopardizing your home purchase. Lenders and underwriters have precise procedures for verifying the source of these funds, primarily to ensure the financial stability of the borrower and the security of the loan. Understanding these nuances, particularly the critical role and specific contents of a gift letter, is essential for any Colorado homeowner utilizing gifted money to seamlessly navigate the complex home-buying process and successfully secure their dream home.

How does a buyer use gifted money?

Purchasing a home is expensive, and homebuyers often rely on gifted money. Before someone can use gifted money for the down payment on a mortgage, a gift letter from the gift donor must be provided to the lender. A gift letter tells the mortgage lender that the money provided for the down payment is a gift, not a loan, and the donor does not have to be paid back.

Lenders require a gift letter from the person giving the gift so they can be sure the homebuyer doesn’t owe anyone else money for the home. GLO specializes in helping people buy homes in Denver or anywhere along the Front Range, including those using gifted money as a down payment.

What is an underwriter and what do they do?

After a homebuyer has applied for a home loan, an underwriter analyzes the homebuyer’s application and goes through the homebuyer’s financial information to make sure the homebuyer can qualify for the loan and to determine risks associated with lending to the homebuyer.

Lenders have financial eligibility requirements, and the lender will scrutinize the homebuyer’s credit history, credit score, income, assets and debts to determine worthiness for a loan. An underwriter will typically look at the current money in a homeowner’s bank account and its source. Any large and unexpected deposits will be closely scrutinized.

What if I have enough money for the down payment?

Lenders are primarily concerned with a homebuyer’s financial fitness. Even if a homebuyer has the money for the down payment, it doesn’t mean the homebuyer is financially fit to keep up with the monthly mortgage payments. Lenders look at money in a homebuyer’s bank accounts to make sure the homebuyer doesn’t owe anyone else money on the home.

When loaning money to buy a home, lenders have to be sure that if you default on payments, they will still receive payment if the house is foreclosed and sold. Lenders need adequate assurance their loan will be paid back.

What is a gift letter and why do I need one?

A gift letter assures your lender that the gift donor is, in fact, gifting you the money and releases any obligation for you to pay the donor back. The letter must also include the address of the home being purchased, the donor’s contact info, the donor’s relationship to the homebuyer, the exact amount and date of the gift, a statement that the home buyer does not have to repay the loan, and the donor’s signature.

Lenders may also require the donor to provide a paper trail for the money they’ve gifted. Generally a gift letter must be provided by each gift donor for any single deposit that exceeds 50% of the total monthly qualifying income for the mortgage.

Can I apply gift money to my mortgage? Is there a limit?

Yes. You can apply gift money to down payments for a mortgage on primary and secondary residences. There is no limit on the amount someone can gift you. However, gifts over the annual threshold must be reported. For 2025, the annual exclusion for gifts is $19,000, meaning donors can give up to this amount without having to report it. Gifts over this amount must be disclosed and the donor will have to file a gift tax return. This means that the amount will be applied to the donor’s lifetime gift tax exclusion, which dictates how much money someone, in their lifetime, can gift another without paying gift taxes.

Depending on the loan and property type, some lenders require homebuyers to contribute a certain percentage of the down payment from their own funds – not gifted funds. Gifted funds cannot be used for investment properties.

How GLO Can Help

For Colorado homebuyers using gifted funds, navigating lender requirements can be complex. At GLO, our experienced real estate attorneys provide essential legal guidance to ensure your transaction proceeds smoothly and without delays.

We help homebuyers prepare legally compliant gift letters that meet lender and underwriter requirements. GLO also advises on maintaining a clear paper trail for gifted funds and clarifies lender-specific rules—such as down payment source requirements and loan-type implications. By addressing these details upfront, we help you avoid loan delays, protect your earnest money, and move forward confidently with your Colorado home purchase.

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GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific signed fee agreements. GLO does not guarantee any results.

Gift Letters: Using Gifted Money for the Purchase of Your Colorado Home