Gifted down payment are funds given to a mortgage applicant by an immediate family member to be used to qualify for a mortgage or simply to lower the mortgage amount. It is a very common and popular mechanism used by parents or siblings to support their family members financially without expecting the support being paid back
If you are planning to buy a home using a gifted down payment, you need to understand who can this Gifted down payment may come from, and, what are the mechanisms to be followed for it to be accepted.
The Government of Canada recently announced the minimum down payment requirement will be increased from 5% to 10% on the portion of a purchase price for a property that is above $500,000 but less than $1 million on insured mortgages. This change will take effect on February 15, 2016.
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Who can offer a Gifted down payment?
Immediate family members (i.e. parent, grandparent or sibling). Gifts from spouses are not acceptable.
How can a Gifted down payment be used?
A Gifted down payment can be used provided that the funds are properly verified, are non-repayable and all other characteristics of the borrower are acceptable. In most cases Gifted down payment is required to be on the applicants’ account 15 days until the time of closing.
A letter must contain the following information
- The amount of the gift
- A statement that the gift is non-repayable and is from non-borrowed funds
- The full names of the mortgagor and Giftor (s),
- The relationship between the mortgagor and the giftor(s) and
- The reason for the gift.
- The deposit or cheque confirming the funds have been received must be obtained.
Acceptance of Gifted down payment is subject to verification