As home prices rise, first-time buyers across Canada are feeling the pinch, and many are turning to parents or other relatives for help with their down payment. Recent data released by the Bank of Montreal shows that 30 percent of first-time home buyers expect to get help from family members, and in pricey markets like Montreal and Vancouver, that number is even higher: 40 percent!
Nationally, BMO found that the average first-time home purchase was $316,100, although this varies by province. In B.C., for instance, the average spend was $430,300, which is nearly twice the average in several other provinces.
Of course, money for a down payment cannot “magically” appear in the borrower’s account at closing time, so mortgage lenders want verification that down payment money either came directly from the borrower or as a gift from an immediate relative. If you’re a first-time buyer who’s getting help from family members with your down payment, here are a few things that you should know.
- Have a generous parent, sibling, grandparent, aunt or other immediate relative? Good for you! However, mortgage lenders typically won’t allow down payment gifts from family friends or bosses or other non-relatives. Sorry.
- Your lender may require that the person gifting the money provide a gift letter outlining the amount of the gift, the recipient, the giver’s relationship to the recipient and the fact that the gift is not subject to repayment terms. Sometimes parents or relative lend money for a down payment rather than gifting it, but lenders frown on this because it increases the borrower’s debt-to-income ratio.
- Some lenders require that the gift-giver share his or her banking history to show the origins of the gift money. If your parents are wary of sharing their financial information with you, they may be able to communicate directly with your lender rather than using you as a middleman. The gift should be deposited into your account so that it can be documented and the deposit should exactly match the amount shown on the gift letter to avoid potential issues.
- If a couple is buying a home jointly, the gift-giver may want to specify in the letter that the gift is intended for their grandchild, child, niece, etc. Otherwise, if a couple divorces, the down payment gift may be presumed to be for the benefit of both parties and split evenly between them. Obviously, nobody buys property with their spouse and anticipates a split, but if that happens, your relative may not want your ex-spouse to walk away with half of that money.
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Hi Atrina,
I plan on being a first time homebuyer in the next few months. I had a question about the gift money. What percent of the down payment be gifted money? Can all of it be gifted as long as I have enough personal money for closing cost?
Thanks for your time
Thank you for your comment. Down payment can be 100% gifted as long as you are employed (not self employed). If self employed you would need to have at least 5% of your own funds and the other 5% can be gifted. Please note that the minimum down payment is 5% if you are employed with reported income. For stated income, minimum down payment would be 10%.
hi
is there any criteria for gifted down payment needs to be in your account for certain time of period such 90 days??
or parent’s can give money when you appy for your mortage?
Hello Vaishali, Most lenders don’t require the history for the gift. They want confirmation of the gift in your account and a gift letter. However, they may ask for a history of the gift (your parent’s account).
My wife wants to buy a place and apply for mortgage on her own name. We will both be moving into this new place as primary residence and it’s going to be our first home so we both qualify for first time home buyers plan. Now my question is since my wife is going to have mortgage ONLY on her name. Can I use my personal RRSP and give it to her as “gift” and still participate in HBP on my name?
Hi Sid, In order to qualify for the HBP, you have to either qualify under the four year period or be a first time home buyer which you both meet . But if you are withdrawing your RRSP’s you have to be on title of the property under the program. If you simply gift the amount, it would get added to your annual income and the HBP would not apply. I have included the CRA link for you below for more information. http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/cndtns/menu-eng.html
Will I be able to obtain a mortgage if I am receiving 100% of the downpayment money as a gift from my close friend instead of an immediate family member or a relative? I have a secure and steady job with a very good credit history.
Hi Morgan, majority of lenders only accept gifted down payment only from immediate family members. Some extend it to family members but unfortunately not to friends.
Hello so if my ex father in law wrote up a letter gifting a portion for the down payment to my ex wife for the house and we are now separated and selling the home am I entitled to any of that or it would just go back to her??
Hi Mike, this would be a question for your lawyer to see how the interest in the home will be divided up. If you are thinking of purchasing a new home afterwards with your proceeds of the sale, I would highly suggest having a separation agreement in place. This way it would be clear how the proceeds of the matrimonial home are divided and avoid future “ownership issues” of the new property.
Hello a year ago i helped a couple to buy their first house. Since they didnt get approved due to credit issues they added me as another applicant and promised me that after one year they will try to apply for refinancing again so they can solely own the house and eliminate me as the partial owner, knowing that those may cause them penalties. A few months ago they tried applying for refinancing but they got denied again becaus of high credit ratio. I really wanted to get out of that mortgage contract. In order to do it someone advised them that i should be giving them a gift letter saying that i am fully giving them all the rights of the property. I am not sure if that will benefit me. I am ok doing it as long as i will be spared from any liabilties or credit issues they are having. What do u think should i do?
Hello Azeh, a gift usually only comes from an immediate family member and it would essentially make up or be a part of the down payment. A gift letter & confirmation of funds would be needed at the time of the mortgage approval.
From what I understand, it looks like you were the co-signer for this application. If the applicants credit score was not high enough, their income was probably not used and they would have needed your income to qualify, and guarantee the mortgage. If they are having troubles qualifying on their own, it means their income does not support their debt (mortgage and other debt) or maybe not their entire income can not be used (for example if they are working over time or part-time and don’t have the 2 years history). Their credit score could also still be too low.
Even if you draft something with a lawyer giving up your rights to the property, the only way you can be off the mortgage is if they can qualify on their own or have someone else take your place . The only other option I can think of is selling the home.
Hello! I have agreed to provide my son with a $50,000 down payment for him and his common law wife to purchase the apartment they are currently renting. I am fine with it being termed a gift, with no payments expected, as long as they are together. However, I would like to stipulate that it would be repaid if the couple split up and the apartment is sold. Can I accomplish this in the Gift Letter? Should we have two agreements, one being the gift letter, and the other being an agreement between my son and his wife that the 50,000 not be considered communal property in the event of a separation (more like a pre-nup…)?
I don’t feel a need to have anything documented that commits my son to repay, that will just be our mutual understanding. So I am just concerned about. the apartment being considered communal property and being split down the middle without concern for the source of the down payment.
Will the bank care about the extra stipulation, given that it would only have meaning if the first mortgage is retired?
Rick
Hello Rick,
Thank you so much for reaching out.
When you gift a down payments, most lenders will require you to fill out their own gift letters which just stipulates that the funds are a gift with no repayment. If you want something extra created, it would have to be through a lawyer. For instance your son can have a co-habitation agreement with his common law wife if he is the only one on the mortgage. Or they can register the property ownership in a way that one person holds a bigger share. The lenders don’t want to get involved in gift distribution and that is why many lenders only accept gifts from immediate family members. Essentially you will be “gifting your son” even though the property will be occupied by both.
It would be best to speak with your lawyer to see what arrangements can be done on your end but there is nothing on the lender side as they do not get involved after the mortgage has been funded.
Hi there,
Thank you for the valuable article! My aunt (technically my great-aunt, but my adult grandparents adopted their sister – her – when she was 4 when her parents – my mom’s grandparents – passed away…confusing, I know!) is considering selling her home to us with the gifting of a down payment. As I am working to rebuild my credit score, the mortgage will be in my fiance’s name only. Will this be a problem when it comes to the familial title? In other words, do I HAVE to be on the mortgage because she is MY relative, or does it matter? My name may be on the title, and we are possibly getting married before purchasing the house, if it matters.
Thank you in advance!
B
Hello Bryanne,
I am glad you found this post helpful. A couple of our lenders sometimes do allow gifted down payment from a spouse so the gift can potentially be coming from you without you having to be on the mortgage/title.
We’re in the process of buying a house. We were guaranteed (to be deposited upon closing) a gift by family to cover additional funds needed to cover downpayment and then closing costs (around $11k). They said go ahead and offer, do it. We have since had a successful fulfillment on the offer, secured our mortgage and insurance based on said gift monies being part of the deal.
The sold sign is up and we have signed a LOT of papers stating we are good to go. The bank has asked us to show more money (a few thousand more than our calculations) than we originally anticipated for closing costs (not sure why, clarification is in progress). Our gifter has now said they were not aware of the extra money and are upset and thinking of not gifting us anything. They are also refusing to show bank statements to provide a record of where the monies are coming from. Are we screwed? Does this affect our ability to buy later if we have to walk away? I am scared, angry, and really worried since we’ve already given our notice where we are renting, and told the world we’ve bought a house (which we have) along with beginning prep to move.
Hello,me and my husband are plan on buy our first house in next month,we are trying to get pre-approval for a mortgage.i have the down payment is from my mother .the mortgage broker need my mother the write a gift letter.
My question is ,I’m not on the mortgage,but I will be on the house titled.
Can the gift letter say is gift for me don’t have my husband name on it .Or can she write like the money is for purchase a house and if we divorce or sale the house the down payment it need to repay to her . It is ok to Write like this to get approval for mortgage or is fine ,it just because we don’t know the future if me and my husband not together ,my mother can get her money back to her.
Thank you so much.
Hello,
If you are going to be on the title, then you will also be on the mortgage even if the broker is
not using your income to qualify. The gift letter in that case can be to your name. But if anything happens down the line, this gift letter does not serve as a legal document. This is merely for the lender to see where your down payment is coming from.
If you do not want to be on the mortgage, you can also not be on title.
Some lenders will allow a spousal gift so if you chose to proceed this way
you can give the funds to your husband.
I currently own a house with my brother and we are selling to buy two new houses. I am short by 20k on 130k I. E. 20 percent downpayment. My brother agreed to gift me the 20k. However, that 20k will come from selling this house. Do you see any issue with it?
Hello Haroon,
Since the 20K is coming from the proceeds of the sale of the home, history can be provided to the lender. The lawyer/ notary will provide your brother with the paperwork showing the proceeds of sale which usually sufficient for lenders.
My mother is gifting us $10000 in CASH towards our downpayment. would the gift keep away any issues with my bank wanting to flag and tax that $$$
Hi Moe, It would be better if the gift can be through a money transfer or a cheque as a any kind of large cash deposits may cause your account to be frozen and can potentially bring up questions with your bank. Gifted down payments are not taxed.
I wish to assist my son purchase a condo by making the down payment but with the view of it being an investment. How can I do this and retain legal entitlement to this gift plus any appreciation in value should the condo be sold .
Hello Wayne, Thank you so much for reaching out. The way that the lenders look at a gift is as non repayable. There is no way that they will accept what you are proposing as in that case, it wouldn’t be a gift and they would have to calculate repayment with interest. What you can do is go on title/mortgage with your son, and that way you are legally protected to the interest and the profit.
Hi, my ex husband wants me to gift him $225,000 for down payment and closing cost. My question is is that even possible to gift an ex and if so is there a limit?
Hi Nicol,
No you can only gift a downpayment to an immediate family member. Some lenders will allow a spousal gift. In your case, this option would not be possible.
Hi, I am going to ask a friend of mine to return money he borrowed from me last year to put it as part of the funds required for clearing off cards etc., and get my mortgage finalized. Is it acceptable as a source of funds? how can I say/state that to my bank?
Thanks. Frank
Hi Frank,
It would be difficult to prove what was borrowed and what is outstanding. You can use the funds to clear off debt but most lenders will probably not accept the new funds as an acceptable source of down-payment history.
Hello Atrina
Can you use RRSP money to buy a rental income property? We won’t be first time home buyers but are trying to help our son either to pay rent to us or get his own house. Mind you he is a pizza delivery driver and makes enough money to pay rent for his own apartment but he has no T4 to prove income.He is though doing his taxes for the last 3 years.We would be 100% co-signer and have great credit. What are our options?
Thank you in advance
sincerely
Marion
Hi Marion,
You can definitely use your RRSP to get a rental property but you can not take advantage of the home buyer plan. Unfortunately, this would mean that you would be taxed on the amount. As a cosigner or a guarantor, you would essentially be qualifying for the mortgage so we will use your income and credit to establish the loan.
Hello, would my husband be able to gift me $25,000 (just received as an inheritance from his late aunt) toward the $65,000 down payment even though, because of his credit, it was recommended to leave him off the mortgage? Is he not considered a family member?
Thank you!
Hi Jennifer,
Yes, there are some lenders that accept a spousal gift. Therefore your husband can gift you the 25K and you can include it as part of your down payment.
Hi, thanks for a great post.
I have a question: I’m looking to use 12,500 from my rrsp, towards a down payment. My partner has already used her Home Buyers Plan and RRSP saving towards a home. Can she gift me $12,500 tax free to make up the 25,000 limit?
Hi James,
Unfortunately if she has used up her HBP limit, she would not be able to use the additional $12,500 tax free even if she is on the mortgage.
I there I was wondering I know a gift letter needs to come from an immediate family member I have a sister whos married so we obviously have different last names is she able to give me a gift letter for a down deposit on a home?
Hi Namcy, Yes, your sister would be able to gift you a down payment and write you a gift letter. I have not had lenders ask for this but essentially they can ask for proof of the relationship.
Hi, my fiance and I are looking to buy a house together. My parents have offered to give me the down payment, which is 75% of the house price. My question is if anything happens to our future marriage, does my fiance get 50% of the house since now we’ve lived together for 2 years and we are in a common law relationship?
Hi Hailey, a gifted down payment is only for the purpose of the lender knowing where the down payment is coming from. It would be best to speak with your lawyer and put together something to make sure each party is protected.
Hi. I’m a nonresident Canadian. My husband and I want to buy a home for when we move back to Canada. Since we’re nonresidents we were told we need to have a 35% downpayment. My parents have agreed to give us the money. However, some internet sites have stated that nonresidents cannot buy a home with a gifted downpayment. Is this correct?
Dear Yaz, 35% down payment is the minimum for non- residents given that your income qualifies for the mortgage. Down payment needs to be in Canada for minimum 30 days in a Canadian bank. Most lenders do not allow for gifted funds on non-resident mortgages.
Hi Atrina,
my parents are gifting me with a down payment on a house. We are wondering if the source of the gift from my parents have any stipulations. They plan to gift the money from 2 lines of credits that they have. Will this be a problem with the lender even after writing and signing the gift letter? Thanks!
Dear Alex, Most lenders will not ask for the source of the gift if the money is already in your possession and it is accompanied by a gift letter.
HI
I am a homeowner now and would like to buy a 2nd house for investment.
My son would be moving into the new house and pay rent.
The best possibe scenario would be to have a 2nd renter in a finished basement.
My question is, how much downpayment would be required?
Thankyou
Dear Lynn,
The minimum down payment for an investment property is 20% of the purchase price.
Hi Atrina,
My mother is interested in helping my husband and I purchase our first home. She was planning on leaving me $50,000 of her RRSPs in her will, but is now wondering if there’s a way to convert that into a down payment (obviously without losing 40% in the withdrawal). What would be the best way to do this? Could she transfer the RRSP to me (tax free)? And could I then use the HBP for our downpayment?
Thanks for your time.
Cheers!
Dear Jillian, This question would be better directed to your accountant/ financial advisor. I am unaware of any ways she can gift her RRSP to you to use for the home buyer plan.
Hi Atrina,
What is the tax implication on gifted down payment on the part of the donor?
How does giving a gift of down payment affect the giver?
Dear Kay, Giving a gift to an immediate family member for the purpose of buying a home does not affect the gift giver and shouldn’t affect your taxes. However, I would say to check in with your accountant with respect to tax specifics.
Hello,
I am purchasing my first home in Alberta and my fiance will be living with me but isn’t on the title. He will be gifting me around 2.5% of the purchase price. We have been in a common law relationship for over 5 years. Is he able to gift me the money?
Dear Penny, Only some lenders allow for a gift from a spouse, common law may make it more challenging unless you are filing taxes together.
Hello. I want to buy house with my brother. We both have $25k in our RRSP and we are both first time buyers. Are we allowed to withdraw 25k each (50k in total) under Home Buyers Plan? Thank You
Hello Andrii, The home buyer plan allows each person to take out 25K from RRSPS if it is an owner occupied home. So technically you and your brother can each use this program if you are buying the home and plan on living together in the same home.
Hello Atrina
We made an offer on a new home. We will be giving the builder the 20% down payment in 4 installments.
Some will come from wedding gifts and the sale of our current condo. The rest I can take from my business accounts when the time comes. Is that ok? I would like to take the least as possible from the business account since I would need to declare it as income and pay 50% tax on it. But if by the 4th installment I need 30/40k I can easily transfer it to my personal account.
Any issues doing this?
Dear Mike, With presales, most lenders want just the copy of the deposit cheques, and if there is any remaining amount left on the down payment at completion, they want the history. I would suggest keeping a very good record of each payment (ie- which account it is coming from) should the lender ask for it at completion.
As long as you are the sole business owner and you can provide proof of ownership, you can take money out of your business account for the down payment. Of course, that will be subject to income tax.
Hi Atrina!! I am a permanent resident, and will receive a gift from my sister who is not a permanent resident and live in another country. Can she send me less than $10,000 CAD for the down payment with the gift letter? This is to complete a 20% down payment. Is this taxable for me? What happens if it is more than 10 K?
Dear Maria, Your sister can gift you the money with the gift letter. There should be no tax implications for receiving the gift as a down payment, but please check with your accountant to make sure. Depending on where the money is coming from, a source of funds may be required and the money may need to be in Canada for at least 30 days.
Can we purchase a home with 20% down and have a daughter move in rather then us she would pay all utilities etc plus a rent
Dear Gail, Yes you can purchase an investment property with 20% down. If your income qualifies, you can purchase with less than 20% down as a second home for your daughter.
Hi , As we are process of buying a house, My wife’s only uncle (maternal uncle) want to contribute 15000 dollars towards the down payment. Do the bank accept that.
Hello,
An uncle is not considered immediate family member. However, some lenders may be able to make an exception.
Hi there, my in-laws have agreed to gift us the money for a down payment on our first home. They were planning to take out a loan and give us the money as they do not have access to their investments at this time but have excellent credit and an excellent income. I was told by the bank that this is not allowed. I’m just confused as they will be gifting the money to us, so what does it matter if they will be paying the money back theirselves? Should we deal with a different mortgage broker or is this just the way it is. Thank you in advance for your reply!
Hello Rachel, If you are getting the funds as a gift, and your in-laws are not on the application, it shouldn’t matter if the gift is technically borrowed. It is different if they are on the application as then the debt would have to be included in the application under liabilities and you would need to debt service with a repayment plan.
[…] mortgage broker Atrina Kouroshnia has also seen down payment help in the six figures. She hasn’t crunched her 2016 down payment […]
Good day Atrina, I have offered to assist my son by funding his down payment to buy his first home in BC & for obvious reasons, want him to take advantage of all the gov’t programs out there. I understand BC Gov’t is now offering a matching program up to 5% – so my question is would the amount I contribute qualify as his down payment if I gift the funds? If yes, would the same hold true if I instead loan the funds to him & register on title so as to safeguard from spousal claims (be it either common-law or married status) on either an interest free or interest basis?
My gf was saving my money for me for the down payment, since i’m not good at saving..can i use this money for down payment if she transfer me the money? it shows on my bank statement that every month i transferred her $700 a month.
No, Unfortunately that would not be an acceptable proof of down payment history. Please have her transfer the funds back into your account and let the down payment sit there until you can provide your complete history. Depending on your downpayment, and your lender you would need to show a history of between 30-90 days.
My mom is planing to co sgin with me. does she have to live in the house with me after we buy?
When you go apply for the mortgage,do you have to show them that same day you have down payment in your bank ? or can gift down payment be pay later once you pick out the house?
Hi Arnold, your mother does not need to live with you if she is planning on co-signing. However, her income level must be sufficient enough to cary her own debt in addition to yours. In regards to your question about downpayment, if the funds are gifted you do not need to have the gift in your account when you apply for a mortgage. There are no issues as long as you get the gift before your completion date.
Hi Atrina,
We have purchased a pre-construction condo. Signed and finalized all the paperwork with the builder including 20% downpayment. On initial pre-approval I was approved for the mortgage. We are now getting closer to the estimated possesion date and getting all the necessary documents for final approval. One of the required documents is the Gift letter from the lender. The problem is the 20% down payment we sent to the builder was given to us (fiance and I) from his parents. Future mother in law addressed the cheque to me directly and cheque deposited to my account as noted as a gift for mortgage downpayment. We did not have the gift letter prepared before the money was deposited. The title and mortgage application is “Only” under my name. Fiance did not get approve on the mortgage. Does this mean that most lenders will denied my application because it did not came from immediate family? We are getting married in 2 months which is 4 months before the estimated possession. Please help,
really need your suggestions on this. Thank you so much!
Hi Lyn, A gift can only come from your immediate family member & future mother in law, or current mother in law are not considered immediate family (mom/dad, sister/brother). Some lenders will accept a gift from a spouse. If deposits paid were from your account, and it has been longer than 90 days, you would not need to provide history of funds. You just need to show the deposits to the developer and provide history of the remaining down payment to include 20% of the net GST purchase price.
Hello Atrina:
My husband died last year and our grand daughter and her husband want to buy the home. They have some $$ deposit but to purchase without CMHC they have asked me to consider a Gift Equity. The house is Gov assessed at $437,000, I havent had a real estate or bank do an assessment – should I or she? She is suggesting I sell to her at $450,000 and give them the difference between last years assessment ($407,000 which I offered it to them at) and the $450,000 as Gift equity. Can I do this and if so would this be subject to taxes?
Hey Teresa,
Thanks for reaching out. What I get from your comment is that this is a private sale between you and your granddaughter. For any private sale, the lender will request an appraisal which will determine the market value of the house. Whether or not you choose to use that value as the selling price for your home is up to you. In regards to the taxes associated with this, please consult your accountant.
Hi, I found this article and find it perfect for what I’m looking for. My husband and I are planning to buy a house and we are getting 100% of the down payment as a gift from mom who lives in another country. She is getting her inheritance and giving it to us so we can buy a house. Her lawyer is planning to give us a notarized letter so we can show where the money is coming from. Will this letter be enough to show where we are getting the money from? Thank you.
Hi Jess,
I think that’s a great question. Depending on which country the money is coming from, it may be better to have the money here in Canada for at least 90 days prior to your purchase. To find out if this applies to you, please check out this link.
Hi ! Question , my aunt was my guardian from ages 10 to adulthood. She has written a letter that states this . She is gifting my downpayment, and has provided a gift letter and bank account records. How likely is it that an exception would be made in this situation ?
Hi, question. me and my sister are buying a house together. The house is worth about 500 000. I am putting 70 000 down payment and she is putting 30 000, making our total down payment 100 000. However the house is split up into 2 separate units, I am getting the smaller 1 bedroom unit and she is getting the rest of the house(4+ bedrooms). How should the mortgage and ownership of the house be split between us. Please help I cant find an answer and it is beginning to cause some tension between me and my sister (assume all utilities are split in half).
Hello Baher,
You can choose to set up the title in two different ways, joint tenants & tenancy in common. The later allows for a percentage of ownership.
Please note that the mortgage can not be registered as a a percentage. Each borrower is equally responsible for the mortgage payments and the actual percentage of payment has to be figured out internally between the borrowers. Ie. If one person stops making their share of payments, both borrowers’ credit will be compromised. Mortgage payments come out of one pre-authorized account so it’s up to the borrowers to make sure adequate funds are in the account to cover each payment.
Can I family member gift a down payment on a rental property ?
David, most lenders do not accept gifted funds for rental properties. An exception may be made depending on the strength of the file and other assets.
Hello, my grandma has agreed to sell me her home. It is appraised at 500,000 but she will sell it for 400,000.
She’s also agreed to gift us 125,000 of the purchase price. Because we would immediately have 125,000 off the purchase price and the home is appraised higher than the purchase price , would we be allowed to take a mortgage of say 350,000 instead of the 275,000 to put towards renovations?
Hello Lynn,
The mortgage is based on your purchase price. If your grandmother is gifting you $125,000, and she is selling the home for $400,000, then your mortgage would be for $275,000. The lender will look at the lower of the actual value or the purchase price and will not lend over and above your purchase price. Please note that many lenders accept gift only from an immediate family member (parents and siblings).