Given how expensive homes are in Canada these days, coming up with a down payment towards this purchase can be a tall order, especially for first-time home buyers. Fortunately for many buyers, parents (and grandparents) give money as a gift for a down payment to help with a home purchase. According to a 2024 report by CIBC, about 31% of first-time home buyers now receive help with their down payment, and the average gift has climbed to roughly $115,000.1
So, how do gifted down payments in Canada work?
Key Points
1. A gifted down payment is a monetary gift you receive from a close family member that you can use towards the down payment on a home.
2. Gifted down payments must truly be a gift; the donor must not expect it to be repaid.
3. Your lender may require a gift letter when you apply for a mortgage to prove that the money is indeed a gift and not a loan.
What Is A Gift For Down Payment?
A gifted down payment is simply money that has been given to you as a gift, usually by a family member or friend. Since the money is a gift and not a loan, it is not charged interest and does not have to be repaid. Buyers can use this monetary gift towards a down payment, as long as there is a paper trail showing that it is not a loan and is coming from reliable sources.
There are certain rules for using gift money as a down payment. If you’re considering gifting a child with a down payment, or if your family has given you funds to purchase a home, there are several important things to keep in mind.
Pros And Cons Of Using A Gifted Down Payment
Before you accept or offer a gifted down payment, it helps to weigh the upsides against the trade-offs.
Pros
- The money is interest-free and never has to be repaid.
- There is no gift tax in Canada, so the full amount goes toward your home.
- It can get you into a home sooner, without years of saving.
- A larger down payment can lower your monthly payments and interest costs.
Cons
- You still have to qualify for the mortgage on your own income and credit.
- Lenders require a clear paper trail, including a gift letter and proof of transfer.
- The money must be a true gift; if it is secretly a loan, it can derail your approval.
- Family help simply is not available to everyone.
Rules On Gifts For Down Payment
Mortgages have many regulations, ranging from high-risk thresholds to insurance. Given this, it makes sense that there are some rules surrounding gifted down payments.
Who Can Offer Gift Money For A Mortgage?
Technically, anyone can send you money as a gift. However, many financial institutions demand that the funds come from the immediate family when you want to use the gift money as a down payment. There are several reasons for this, with the primary motive being that money is a true gift.
Why Must The Funds Be A True Gift And Not A Loan?
Lenders don’t want you to use gift money that requires repayment. Otherwise, it won’t be a true gift, and you would be in debt both for the mortgage and the down payment (making you a high-risk borrower). Debt-to-income ratios are a major factor when approving someone for a mortgage. So, if you have to repay the gift money, this would increase your debt-to-income ratio.
To ensure the gifted down payment is actually a gift, most lenders will require that you supply a gift letter as proof.
How Much Money Can Be Gifted As A Down Payment In Canada?
There is no limit on monetary gifts for a down payment in Canada. This means your parents could purchase the entire house and gift it to you. Plus, there is no tax applied to gifted funds.
That said, there are rules on minimum down payment amounts required to buy a home.
Minimum Down Payment Rules
In general, you’ll need to offer 5% to 20% of your home price as a down payment. The exact amount depends on the value of your home. As of December 15, 2024, the price cap for insured mortgages increased to $1.5 million, which set the current tiers:2
| Home Price | Minimum Down Payment |
|---|---|
| The first $500,000 of the purchase price | 5% |
| The portion from $500,000 up to $1,500,000 | 10% |
| Homes that cost $1.5 million or more | 20% (these mortgages cannot be insured) |
If your total down payment, gift included, comes to less than 20% of the purchase price, your mortgage is considered high-ratio and will need mortgage default insurance, which adds to your overall costs.
Do You Still Have To Qualify For A Mortgage With A Gifted Down Payment?
A gift solves the down payment problem, but it does not get you out of qualifying for the mortgage itself. You will still need to meet your lender’s usual requirements, starting with a strong enough credit score and enough steady income to comfortably cover the payments.
On top of that, you will have to pass the mortgage stress test, which checks that you could still afford your mortgage if interest rates were higher than your contract rate. A gift makes the down payment easier, but it does not change this affordability test.
Before you start shopping, it is worth getting pre-approved. A pre-approval tells you how much a lender is willing to lend, which in turn tells you how large a down payment gift you actually need to reach the price you have in mind.
Documents Needed For A Gifted Down Payment
To accept a gifted down payment, your lender needs a clear paper trail proving the money is a genuine gift from an approved source. Here are the documents and evidence you’ll typically need.
Gift For Down Payment: What Is A Gift Letter?
A gift letter is an essential document when providing a gifted down payment for your mortgage. Most lenders require the donor to fill out and sign a mortgage gift letter, which confirms there is no obligation for you to repay the funds and includes the amount of the gift and where the money was sourced from. Essentially, the letter shows that your money is a genuine gift, issued in good faith by a donor who has no expectation of monetary gain from the transaction.
Gift For Down Payment: What Are Proof Of Funds?
In addition to the gift letter, your lender may request a transfer receipt. This is to show that the money was moved directly to you from the donor. You can find this receipt on your bank statement, and it also serves as proof of your down payment.
Mortgage lenders also request proof that the donor sent the money. The bank records the transaction numbers to substantiate the source of the funds, that the money is a real gift, issued intentionally. It also shows the practical side of how much money you receive.
While issues are not common, you may encounter more in-depth requirements if the money is sourced from overseas. If you are receiving a gift from overseas, plan ahead and keep all correspondence and financial records to ensure that you can substantiate the source.
Proof Of Transfer
Beyond the gift letter, your lender will want to see proof that the money actually moved from the donor to you. This usually means a copy of the donor’s bank statement showing the withdrawal and your own bank statement showing the matching deposit. A bank draft, wire transfer, or e-Transfer record works well because it clearly ties the funds to the donor. Try to avoid cash deposits, since a lender cannot verify where cash came from.
Timing Evidence
Lenders also look at when the money landed in your account. Most prefer to see the gift sitting in your account for at least 90 days before you apply, which is often called seasoning. If the funds arrived more recently, keep the gift letter and transfer records handy so you can show exactly when and where the money came from.
Do The Funds Have To Be In My Account Before I Apply, Or Can They Come Close To Closing?
You have some flexibility here, but timing matters. Many lenders prefer the gift to be seasoned in your account for about 90 days before you apply, since that shows the money is not a last-minute loan. That said, plenty of lenders will accept gift funds that arrive closer to closing, as long as you provide a signed gift letter and clear proof of the transfer.
The main risk is leaving it to the last minute. Funds that show up right before closing can trigger extra verification and delay your approval. If your down payment is coming as a gift, the safest move is to have the money transferred as early as possible and keep every record.
5 Tips On Gifts For Down Payments
Obtaining a mortgage takes organization and planning, even with a gifted down payment. To manage all the aspects of the gift, be sure that you know the five key tenets, as follows:
1. Make Sure The Donor Is An Immediate Family Member
Though the specific requirement varies based on the institution, most lenders require your gifted down payment to come from a parent, grandparent, or sibling. If the donor has a unique relationship with you, you’ll need to substantiate that proof. For example, if an aunt, uncle, or godparent wishes to gift funds for your home purchase, you can supply an official baptismal certificate or a notarized letter to prove the relationship. However, the bank has the right to reject it at their discretion.
2. Consider Self-Employed Rules
If you’re self-employed, you may need to make a larger down payment, as much as 20% or more. As a self-employed person, you’ll need to put at least 5% down on your own. The rest of the down payment money can come from a monetary gift. So, while you can use gifted funds for most of your down payment, you’ll need to come up with some money yourself, so be sure to plan ahead.
3. Consider The 90-Day Deposit Money Period
Lenders prefer that the gifted funds be deposited into your bank account at least 90 days before you apply. This ensures that the money has been in your account for a sufficient amount of time, showing that it’s not from a loan that could affect your ability to pay the mortgage. That said, the specifics of such requirements vary among lenders, so it’s important to verify your lender’s policies when it comes to gifted money for down payments.
4. Include Details In Your Gift Letter
Your lender will want to see specific information in your gift letter, such as:
- The amount of money being gifted
- Home price
- Personal information of the donor
- Relationship between you and the donor
- Source of the funds
- A statement affirming that the money is indeed a gift that is not to be repaid
5. One Lump Sum Deposit Is Ideal
If your family member agrees to give you money for a down payment, ask that the funds be provided in one lump sum. Making multiple deposits can make it more difficult to provide a paper trail, and will make it harder for your lender to track where the money came from.
Common Gifted Down Payment Mistakes To Avoid
A gifted down payment is straightforward, but a few avoidable slip-ups can stall or sink your mortgage approval. Watch out for these.
Mistakes To Avoid
- Relying on a verbal agreement instead of a signed gift letter.
- Depositing the gift as cash, which a lender cannot trace back to the donor.
- Accepting a gift the donor borrowed, since a loan disguised as a gift can be rejected.
- Sending the money in several small deposits instead of one lump sum.
- Leaving the transfer until right before closing.
- Failing to disclose that part of the down payment is actually a loan.
Gifted Down Payment vs A Co-Signer
A gift and a co-signer solve two different problems. A gifted down payment helps when you can comfortably afford the monthly mortgage payments but simply do not have enough cash saved for the down payment. Once the gift is given, the donor walks away with no ongoing responsibility.
A co-signer, on the other hand, helps when your income or credit is not strong enough to qualify on your own. But it ties that person to your mortgage for years and makes them equally liable for the debt. If your parents want to help without staying on the hook, a gift is usually the cleaner option. If the issue is qualifying rather than cash, a co-signer may be necessary.
Can You Combine A Gifted Down Payment With A Co-Signer?
Yes. There is nothing stopping you from using both at the same time. A parent could gift part or all of your down payment and also co-sign the mortgage to strengthen your application. This can be helpful if you are short on both the down payment and the income or credit needed to qualify.
Just remember that each piece comes with its own paperwork. The gift needs a gift letter and proof of transfer, while the co-signer will go through the same income, credit, and debt checks as you.
What Happens If A Gifted Down Payment Needs To Be Repaid
A gifted down payment only works if it is a true gift with no expectation of repayment. If the money actually has to be paid back, it is a loan, not a gift, and that changes everything.
Your lender will treat it as debt, which raises your debt-to-income ratio and can lower the amount you qualify for or lead to a decline. Signing a gift letter for money you have secretly agreed to repay is also considered mortgage fraud, which can carry serious consequences. If your situation changes and repayment becomes part of the deal, the honest move is to tell your lender so they can reassess. If a parent wants to be repaid, it is usually better to structure the help as a documented loan from the start, or to explore a co-signing arrangement instead.
Other Ways To Get A Down Payment
Gifts aren’t the only way that family members can assist in the home-buying process. For starters, the money doesn’t have to be in the form of cash. Parents have other options to assist if the value of their assets isn’t liquid. These include:
Save The Rest Yourself
If a gift only covers part of what you need, you can make up the difference by saving for a down payment on your own, since even a modest monthly amount adds up over time.
Second Mortgages/Home Equity Loan
If the parent or other donor is a homeowner and has significant equity in their home, they may be willing to use it as collateral for a second mortgage or home equity line of credit (HELOC). After this, they can transfer the funds as a gift. The only caveat is that there must be a clear understanding that the parent is obliged to repay that credit line or second mortgage.
Co-Sign
Co-signing on a mortgage means agreeing to take over mortgage payments if the borrower named on the mortgage stops making payments. Parents can include their name on a mortgage as a co-signer, which can help home buyers increase their chances of loan approval at an affordable rate. A co-signing arrangement makes sense if the child has savings, yet doesn’t have a high enough credit score to get the mortgage. The co-signer can assist in this regard, though it makes them equally liable for the entire mortgage.
Use A Government-Backed Program
The federal government offers some programs designed specifically to help home buyers come up with a down payment for a home purchase:
Home Buyers’ Plan (HBP)
The Home Buyers’ Plan allows first-time home buyers to borrow up to $60,000 from their RRSPs to be used for a down payment. Couples can access up to $120,000 when they each borrow from their RRSPs.
First Home Savings Account (FHSA)
The First Home Savings Account is designed to help young Canadian home buyers save up money to buy their first home. Eligible borrowers can use this tax-free account to save up to $40,000 for the purpose of a down payment. Plus, contributions are tax-deductible, so you can reduce your taxable income when you file your taxes.
Down Payment Assistance And Rebates
Depending on where you live and your situation, you may also qualify for other help:
- Down payment assistance programs. Some provinces and municipalities offer down payment assistance programs in the form of low-interest or forgivable loans for eligible buyers.
- First-time buyer rebates. Many provinces offer land transfer tax rebates for first-time buyers, which frees up cash you can redirect to your down payment.
If you are still short, you can also look at how to borrow money for a down payment, though borrowed funds come with their own rules and costs.
Where Can You Get A Mortgage If You Don’t Have A Gift For Down Payment?
While some Canadians are lucky enough to have parents (or another close person) in their lives to offer gift money as a down payment, not everyone does. If you haven’t received a gifted down payment, you may wonder how it’ll affect your chances of getting a mortgage.
If you’re not sure you can qualify for a mortgage without a gifted down payment, try applying with a mortgage broker. A broker can help find you the best mortgage solution based on your finances, working with dozens of different lenders to help borrowers find the best rates. Whatever your situation, it helps to understand how to shop for a mortgage so you can compare lenders and rates with confidence.
Bottom Line
Gifted down payments can be a great way for Canadians to access housing that they otherwise couldn’t afford. Parents can help their children financially and set them up for the future by putting a mortgage within reach. If you’re lucky enough to be a recipient of a gifted down payment in Canada, make sure the funds are accompanied by a gift letter and any other paper trail your lender may want to see.
Gift For Down Payment FAQs
A gift letter for a mortgage is a binding document that declares that the gifted down payment funds are given freely, as a gift, by an immediate member of your family. It shows the lender that you are not obliged to pay back the gift.
No, Canada doesn’t have a gift tax. The necessary taxes are paid by the donor, so the recipient has no tax obligation. There is no cap to the amount you can give as a donor, either, but there is no tax deduction associated with it.
Generally, lenders require the gifted down payment to come from an immediate family member like a parent, grandparent, or sibling. Most lenders have this requirement to ensure that the money gifted is indeed a gift and not a loan.
It can, but many lenders prefer the funds to be seasoned in your account for about 90 days first. If the gift arrives closer to closing, you’ll need a signed gift letter and clear proof of the transfer, and you should expect some extra verification that could slow down your approval.
Yes. A family member can gift part or all of your down payment and also co-sign your mortgage. Each comes with its own requirements: the gift needs a gift letter and proof of transfer, and the co-signer goes through the same income, credit, and debt checks that you do.
References
- CIBC Economics. (2024). Gifting for a down payment in Canada. https://www.cibc.com/
- Government of Canada, Department of Finance. (2024). Increasing the insured mortgage price cap to $1.5 million. https://www.canada.ca/en/department-finance.html
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
