A “Gifted” Down Payment is very common for first-time buyers. Essentially, a buyer’s family member will offer up money to go towards the down payment of their new home. A gifted down payment is often used when the new buyer does not have enough money to get to the 5% required down on their first home or to ensure the buyer makes the 20% down ensuring they don’t need extra mortgage protection caused by CMHC premiums.
All that is required for documentation to use gifted money for a downpayment is a signed Gift Letter from the person gifting the money, which simply states that the money does not have to be repaid, and a snapshot of the bank account showing that the gifted funds have been transferred. Another option is to have someone co-sign your loan however there are stringent rules around how cosigning works get the details here.
Gifted Downpayment Guidelines
While a gifted down payment seems simple there are a few rules that must be followed:
- 100 % of the down payment can be gifted as there is no gift tax or lifetime limit unless you are self-employed then you need to prove that 5% of the down payment is of your own money
- Gifters must be immediate family only including brother, sister, mother, father, or grandparent
- It must be a gift and not a loan, if the money has to be paid back the person borrowing will no longer be able to properly afford the mortgage stress test
- The gifter must be able to prove where the money came from with a fund history
Gifted Downpayment Letter Requirements
A gifted down payment is viewed as an acceptable form of down payment by almost all lenders. The guidelines above help ensure the new homeowner can pay off the amount they are borrowing. The lender will require a gift letter signed by the person giving the gift.
What needs to be in your gift letter:
- Your name and the name and address of the person making the gift
- The amount that’s being gifted to you
- The address of the home you’re buying
- The relationship of the person who’s making the gift
- Where the money’s coming from (i.e. a checking account, savings account, investment account)
- A clear explanation that the money is a gift, not a loan (borrowed funds are not allowed for down payment gifts)
- The signature of the person gifting the funds
If you have any questions regarding your gift please give us a call. The requirements for your mortgage depending on the location of your home and the mortgage product you are getting. We can help ensure you are ready to get your pre-approval.
It is important to use a local mortgage broker. If you are purchasing a home in the Surrey or Langley Area we are here to help. Check out why you will want to get your mortgage from a local mortgage broker in the Surrey and Langley area.