July 20 2022
Nowadays, it’s very common for first-time buyers to get help from a family member when buying a home. In fact, just last year nearly 30% of Canadians received assistance from a parent or family member with their down payment. And, according to a report conducted by CIBC, the average gifted down payment in 2020 was $82,000 – which is up 58% since 2015.
From paying off school loans and budgeting for daily living expenses to rising housing prices, it can be difficult for some first-time buyers to fully afford a home today. That’s why we’ll often see parents and family members lend a helping hand.
What is a gifted down payment?
A gifted down payment is when a parent or family member gives you the funds to put toward a home purchase. When you receive gifted funds, it means that this is not a loan and therefore, not obligated to pay the money back.
Who is allowed to gift a down payment?
Anyone can gift a down payment, however, it usually comes from a parent or close family members such as a grandparent or older sibling. Lenders will typically want to know the relationship between the gifter and the giftee and understand the context behind the gift. For instance, a young couple is getting married and one of their parents wants to help them with their home purchases and gives them $80,000 for their down payment.
How much can you receive as a gift?
The amount of the gift is entirely up to the individual providing the funds. If you know the amount of gifted funds you’ll be receiving, it’s a great idea to get pre-approved for a mortgage so you’re searching for homes in neighbourhoods you can afford to live in.
Prepare a gift letter
If you are receiving a gift toward your down payment, you’ll need to provide your lender with a gift letter. This letter outlines who your family member is, the amount they’re giving you, and outlines that the money is being used for your home purchase. The purpose of this letter is to confirm to your lender that you’re not taking on a loan or have any additional debt. Generally, a gift letter template will be given to you by your lender, or you can get one from our team at Homewise.
A gift letter should include the following information:
If you’re expecting to receive a gift for your down payment, connect with one of our dedicated Mortgage Advisors at Homewise. We help and guide all types of Canadian buyers navigate the mortgage process so they can find the best solution that fits their needs. If you’re ready to start the process, get pre-approved with us in just five minutes!
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