Credit gives the word to pay either by repaying it or returning those resources later. In other words, this credit is the method of making the reciprocity formal, legally enforceable, and of course, extensible to a vast group of people who are not related.
However, the resources provided may be financial or have goods or services, like consumer credit. The credit covers any form of deferred payment. Credit generally gets extended by the creditor, the debtor or lender, and sometimes the borrower.
A gift letter essentially states that such a transfer of money is done in good faith and without any obligations. It illustrates that the transfer of money is done purely in the form of a gift and does not carry any liability. A gift letter also indicates that the money transferred is not in the form of a loan and does not attach any liability of repayment on part of the recipient.
The most common usage of gift letters has been observed with respect to the purchase of real estate. In most instances, friends or family members make significant monetary contributions for down payments when a borrower is purchasing a residential property. Now, these contributions may be made in the form of gifts and the creditors may not consider it a loan. However, it becomes vital for both the recipient and the mortgage provider to have a signed gift letter stating the same. This allows both the recipient and the mortgage provider to proceed without running the risk of a potential financial setback.
Any transfer of monetary funds, assets, or properties from one person to another can be constituted as a gift. The primary focus here is the intention and expectation of the person making the gift. It should be clear from the start that the transfer made is not a loan that the donor expects to be paid back. This is where a gift letter comes into the picture.
In mortgage applications, the reception of any monetary gifts that would contribute to the mortgage-related expenses must be disclosed at the time of applying. This is because mortgage lenders will evaluate your finances in order to assess whether you will be able to pay the mortgage and having another loan hanging over your head would make you less suitable for it.
