Buying a home is often the biggest investment an individual will make in their lifetime. However, coming up with a down payment can be a significant challenge for some people. In such cases, receiving a gift from a family member or close friend can help ease the financial burden. In Canada, gifted down payments (not to be confused with a gift of equity) are a common practice and are often accepted by lenders as long as certain criteria are met.
What is a gifted down payment?
A gifted down payment is a sum of money that is given to an individual by a close relative or friend to help them purchase a home. A lender may also accept a gift from a spouse, a common-law partner, or a trust. However, it’s important to note that the gift must be unconditional, meaning it cannot be a loan, and it must be verified through proper documentation, such as a signed gift letter from the donor confirming the gift and their relationship to the borrower.
There are many different ways that the money can be provided to you by a family member:
- Cheque: is written to your name and deposited into your account
- Wire transfer: with a proven wire transmission record
- E-transfer: Although, gifts are typically larger sums of money.
- Cash deposit to your account
In conclusion, a gifted down payment can be a valuable option for individuals who are struggling to come up with the funds for a home purchase. However, it is important to understand the eligibility criteria and the potential tax implications before accepting a gift. It is always recommended to seek the advice of a licensed mortgage professional or a lawyer to ensure that the gift meets the necessary requirements and to understand the tax implications.
