Gifted Down Payments
Most lenders accept a gifted down payment from immediate family, but they require a signed gift letter confirming the funds do not need to be repaid. The money typically needs to sit in your account for a certain period before closing, and lenders may ask for proof of the transfer.
Family Loans vs Gifts
If your parents expect to be repaid, this is a loan, not a gift, and it needs to be disclosed to your lender since it affects your overall debt picture. Some lenders treat borrowed down payments differently, and undisclosed loans can create serious problems if discovered later.
- Gifts require a signed gift letter
- Loans must be disclosed to lenders
- Non-disclosure can jeopardize approval
Co-Signing vs Gifting
Instead of gifting money, some parents choose to co-sign the mortgage to help their child qualify, which is a different arrangement with different risks. Co-signing means the parent is legally responsible for the debt, while gifting is a one-time contribution with no ongoing obligation.
Joint Ownership Arrangements
Some families choose to buy together, with parents on title and possibly on the mortgage, particularly when the child's income alone would not qualify for enough. This requires clear conversations about long term plans, since joint ownership affects everything from resale decisions to inheritance.
Tax and Legal Considerations
Large family gifts for a home purchase are generally not taxed as income in Canada, but if parents are added to title, there can be other tax and legal implications worth discussing with an accountant, especially around future capital gains if the property is not the parents' principal residence.
Frequently asked questions
- Do lenders require proof that a down payment gift is really a gift?
- Yes, most require a signed gift letter and documentation showing the funds were transferred and are not expected to be repaid.
- Is it better for parents to gift money or co-sign the mortgage?
- It depends on the family's financial situation and goals, gifting is a one-time contribution while co-signing creates an ongoing legal obligation for the parent.
- Can grandparents or other relatives also gift a down payment?
- Many lenders accept gifts from immediate family members beyond parents, but confirm with your specific lender which relationships qualify.