Down Payment Gifts from Family: Rules and Requirements

Family members helping with your down payment? You need to follow specific rules for lenders to accept the gift—proper documentation ensures your mortgage approval goes smoothly without delays.

Can You Use Gifted Funds for a Down Payment?

Yes, but with conditions:

• Gift must be from an immediate family member
• Gift cannot require repayment
• Gift must be properly documented
• Source must be clearly traceable

Who Can Give a Down Payment Gift?

Acceptable gift sources:

• Parents
• Grandparents
• Siblings
• Spouse/common-law partner

Possibly acceptable (varies by lender):

• Aunts/uncles
• In-laws
• Other close family

Not acceptable:

• Friends
• Employers
• Business partners
• Anyone expecting repayment

The Gift Letter: What's Required

Lenders require a signed gift letter stating:

1. Donor information:

• Full legal name
• Address
• Relationship to you

2. Gift details:

• Exact dollar amount
• Confirmation it's a genuine gift
• Statement it's non-repayable
• No interest or expectation of return

3. Signatures:

• Signed by donor(s)
• Dated

Sample language:
"I, [Name], am providing a gift of $[Amount] to [Recipient] for the purpose of a down payment on a home. This gift does not require repayment."

Tracing the Funds

Lenders want to see the money trail:

Donor's side:

• Bank statement showing funds leaving their account

Your side:

• Bank statement showing funds arriving
• Funds in account for closing

Why tracing matters:
Lenders need to ensure the funds aren't secretly a loan (which would affect your debt ratios).

How Much Can Be Gifted?

No dollar limit on gift amount for mortgage purposes.

However:

• Minimum 5% must come from acceptable sources (gift or savings)
• Some lenders prefer part of down payment from your own savings
• Larger gifts may trigger tax questions (for the donor)

Timing: When Should the Gift Arrive?

Best practice:

• Gift should be in your account 30-90 days before closing
• Immediate transfers right before closing raise questions
• Paper trail should be clean and clear

Last-minute gifts:
Possible but require more documentation and may delay closing.

What If It's Really a Loan?

If your family expects repayment:

It's not a gift—it's a loan:

• Must be disclosed to lender
• Counts toward your debt obligations
• Affects your TDS ratio
• May reduce what you qualify for

Don't misrepresent a loan as a gift. This is mortgage fraud.

Tax Implications

For the receiver (you):

• No tax on receiving a gift in Canada

For the donor (family member):

• No gift tax in Canada
• If gift is from sale of investments, they may have capital gains
• Very large gifts may trigger CRA questions

Consult a tax professional for significant gifts.

Gifted Equity (Family Property Sales)

Buying from a family member? They can "gift" equity:

Example:

• Home value: $500,000
• Family sells to you for: $450,000
• Gifted equity: $50,000 (counts as your down payment)

Same documentation requirements apply.

Common Gift Mistakes

1. No paper trail
Cash under the mattress doesn't work—lenders need bank statements.

2. Last-minute gifts
Surprise deposits close to closing create problems.

3. Vague gift letters
Missing information delays approval.

4. Gift from unacceptable source
Gifts from friends or employers typically won't be accepted.

5. Undisclosed repayment expectation
If it's really a loan, disclose it properly.

FAQ

Q: Can the gift cover 100% of my down payment?
A: Yes, for most insured mortgages. Some lenders prefer you contribute some personal savings, but many accept full gift.

Q: Can I receive gifts from multiple family members?
A: Yes. Each donor needs to provide a gift letter.

Q: What if my parents are sending money from another country?
A: International gifts are acceptable but require more documentation (exchange records, international transfer receipts).

Q: Can my parents gift money from their HELOC?
A: Yes, as long as it's documented as a non-repayable gift. The debt is their responsibility.

Q: Does a gift affect my credit score?
A: No. Receiving a gift doesn't impact your credit.

What's Next

Gifts can make homeownership possible, but documentation is essential. Work with your broker and family to prepare gift letters and fund tracing early in the home buying process.