How to Use a Gift Letter for Down Payment in Canada

When purchasing a home, one of the most significant hurdles many homebuyers face is saving up for a down payment. Fortunately, you may be able to receive assistance from a close family member in the form of a gifted down payment.

One of the requirements for receiving a gifted down payment is a mortgage gift letter. In this article, I’ll explain how mortgage gift letters work, gift letter requirements, and any tax implications.

What Is a Gift Letter?

A gift letter is a written statement confirming that the funds given to a homebuyer for a down payment are a gift, not a loan that has to be repaid. Included in the letter are details about the person giving the money, the source of the gifted funds, and the relationship between the giftor and the recipient. The information helps mortgage lenders correctly assess and process your mortgage application.

It’s critical to ensure that the gift letter includes specific information to satisfy your mortgage lender’s requirements.

Who Can Gift Money for a Mortgage Down Payment?

Mortgage lenders typically prefer that your gift comes from an immediate family member, as it lessens the chance of the gift being a hidden loan.

Gifts from family members such as parents, grandparents, siblings, and other close relatives are generally accepted by lenders. The letter helps to ensure that both you and the family member gifting the money clearly understand that the funds are not a loan and must not be repaid.

Always check with your mortgage lender for the exact requirements involving gifts and any accompanying documentation, as the guidelines will vary slightly from one institution to the next.

How Much Can I Receive as a Gift for a Mortgage Down Payment

Typically, there are no restrictions on the gift amount you can receive for a down payment. As long as the mortgage lender agrees, the full down payment may be gifted. You may also be able to receive gifts from multiple people if more than one family member wishes to help out.

Will I Pay Taxes on the Gifted Money?

There is no “gift tax” in Canada, so you don’t have to worry about paying tax on your down payment gift. However, it is a good idea to keep a record of any transactions related to the gift in case the Canada Revenue Agency ever asks you about it.

Down Payment Gift Letter Requirements

To satisfy your mortgage lender’s requirements, your gift letter will need to include the following information:

• The Giftor’s information: This includes their name, contact information, and their relationship to the recipient.
• The gift amount: The letter must clearly state the exact amount of money being gifted for your down payment.
• Source of the funds: The letter must explain where the donor’s funds are coming from. This way, the lender can verify the legitimacy of the donation. To confirm the funds, the person giving the gift can provide a current bank account or investment statement. Your lender may allow their financial institution to sign the letter confirming the giftor’s funds.
• No repayment expectation: The gift letter must state that the funds are a gift and not a loan, meaning there is no expectation of repayment from you, the mortgage borrower.

Always consult with a qualified real estate agent or mortgage advisor for guidance on gift letter requirements. In most cases, mortgage lenders prefer that you use the gift letter template that they provide, so you don’t need to write your own.

Final Thoughts

A down payment gift letter is required when using gifted funds to help with your home purchase. Be sure to consult with a professional and provide all the necessary information in the letter to meet your mortgage lender’s requirements.

Experienced real estate agents and lenders in Canada are well-versed in handling this aspect of the home-buying process. By following their guidance and ensuring that your gift letter meets the necessary criteria, you can alleviate any concerns or delays in securing your mortgage.

Mortgage Gift Letter FAQs

Can a gift be used for the entire down payment?

Yes, a gift can be used for the entire down payment as long as the donor is a close relative and the gift meets the mortgage lender’s requirements. However, it’s important to keep in mind that some loans may require you to contribute a portion of your own funds.

Do lenders request specific gift letter formats?

Lenders typically have their own requirements for gift letters, but most will request similar information. A standard gift letter should include the donor’s name, contact information, your relationship to the donor, the gift amount, the gift transfer date, a statement that repayment is not expected, and the donor’s bank and account details.

Is a verbal agreement sufficient, or must it be in writing?

A verbal agreement is not sufficient when it comes to using gift money for a mortgage down payment. Lenders require that you provide a written gift letter, which can serve as a legal document to verify the gifted funds.