GIFTED DOWN PAYMENT – WHAT YOU NEED TO KNOW

With the current housing climate, having a strong down payment has never been more important. More and more Canadians are using gifted down payments as a way to get onto the property ladder. Keep reading to find out everything you need to know about having a gifted down payment.

What are the benefits of a gifted down payment?

For many Canadians, a gifted down payment can be life-changing. Aside from enabling you to purchase your property, it can also save you thousands of dollars in interest over the lifetime of your mortgage.

Most lenders in Canada will only allow your down payment to be gifted from an immediate family member. This includes parents, grandparents, legal guardians, children and siblings.

Most importantly the money needs to be a gift. If there is an expectation that you will repay the funds back to your family member then it is no longer a gift and is subject to additional rules.

Be aware that some lenders might also not allow you to have a gifted downpayment if:

• The property is non-owner-occupied (e.g., an investment/rental property)

• You can’t prove your income

• You’ve previously had a bankruptcy

• The gifted funds are from outside Canada

What is a gift letter?

Any funds that are gifted will need to be declared with a gift letter. The gift letter proves that the funds are legitimate and are truly a gift (instead of a loan) and will need to be signed by both parties. Your gift letter will typically need to include the following details:

• Borrower’s name

• Date (not to be more than 30-90 days old, depending on lender policy)

• Donor’s name, address, and phone number

• Donor’s relationship to the borrower

• Amount being gifted

• A statement confirming the funds do not need to be paid back

• Address of the property being purchased

The lender will also want to see a copy of the transfer of funds, whether this is by cheque or bank transfer. The lender will also want proof that the funds were deposited into your bank account, make sure that the funds are transferred well in advance of the closing date, at least 30 days.

If you need any help in figuring out if you are eligible for a gifted down payment or want assistance in writing your gift letter, our brokers are only a phone call away!