Gifts & Loans for Down Payment on Homes

down payment

Gifts & Loans for Down Payment on Homes

When buying a home, it can be difficult to come up with the funds for the down payment. NerdWallet Canada’s 2024 Canadian Home Buyer Report, found that “Home buyers are getting help where they can. Referring to their most recent home buying experiences, homeowners say they made use of mortgage brokers (21%), the First-Time Home Buyer Incentive (12%) and down payment assistance from family (11%). ”

What are the downpayment amounts and rules for purchasing a home? For owner-occupied homes, the minimum down payment in Canada is 5% on the first 500,000 and 10% on the amount above $500,000. The total of those two numbers equals your minimum requirement on a down payment.  However a down payment of less than 20% of the purchase price requires mortgage loan insurance, sometimes called mortgage default insurance.

If you are able to receive a gift or a loan towards the down payment it can help you get into the real estate market earlier and purchase ahead of potential price increases, rather then waiting to save for the full down payment.

Points to consider

If you are planning on repaying your family, it is not considered a gift, but a loan, and must be disclosed to the lender, which may count towards your debt ratio, reducing your maximum mortgage amount. Misrepresenting the down payment as a gift when it is a loan is fraud and can jeopardize your mortgage as well as create a financial burden on a homebuyer.

Borrowers and family gift-givers must typically sign the lender’s gift letter. This attests that the down payment funds are non-repayable.

For conventional mortgages, most lenders require down payments to come from a parent, grandparent, child or sibling.

If needed, a broker can recommend uninsured lenders that allow your family member to register a second mortgage on the property. This ensures the down payment loan is repaid if the property is sold. The second mortgage can be interest-bearing or non-interest-bearing, with payments or without.

Family members sometimes opt to go on title (take a small percentage of ownership, for example). That way, their down payment funds are not viewed as a gift. But note, this makes them responsible for the mortgage if the other buyers default.

As experienced Realtors®, we are here to answer all your questions! We will update you on the present market and the value of comparable homes in the neighborhood(s) you are interested in. We have the expertise and contacts to assist you with your home purchase! 

Contact us!