Gifted Down Payment From Parents: Rules for Ontario Buyers

Many Ontario buyers look to family for help reaching a down payment, and how a lender treats that money depends on your situation. Help from family is common, but how a lender treats it depends on your lender and your situation, so it is worth confirming with a lawyer.

This article explains how gifted money fits into the minimum down payment, what a gift letter usually does, and what can go wrong if the money is really a loan. Lender rules differ, so treat this as a general guide and confirm details with your lender and a lawyer.

How a gift fits into your down payment

The federal minimum down payment is 5% for homes of $500,000 or less. For homes from $500,000 to $1.5 million it is 5% of the first $500,000 plus 10% of the portion above $500,000, and for homes of $1.5 million or more it is 20%.

If you put down less than 20%, you will typically need mortgage loan insurance. For CMHC homeowner mortgage loan insurance, the purchase price must be below $1,500,000, and traditional down payment sources include a non-repayable financial gift from a relative.

What a gift letter usually says

Whether you need a written statement from the person giving you money depends on your lender and your situation, so it is worth confirming with a lawyer. Each lender sets its own wording and requirements, so ask yours what it needs before the money moves.

• Ask your lender for its form or checklist.
• Ask what details the statement must include.
• Ask what proof of the money's source it wants to see.
• Ask when it needs these documents.
• Confirm the answers with a lawyer if anything is unclear.

The risk if the gift is really a loan

A gift and a loan are different things. A loan has to be repaid, which is a debt, and it can change how a lender looks at what you can afford. If your parents expect repayment, or you have a side understanding, a letter calling it a gift would not match reality.

That mismatch can cause trouble with your lender, and it can cause family disputes later. If the arrangement is really a loan, tell your lender and ask how it will treat it. A lawyer can help you document it properly.

Relationships can also change. If you are married, spouses can set their own property terms in a marriage contract, which can exclude property, including the family home, and both people must sign it in front of a witness. If parents want to protect their contribution, a lawyer can explain the options before you buy.

Other money you can combine with a gift

A gift is often one piece of the down payment. Two registered options may sit alongside it.

• First Home Savings Account (FHSA): participation room is $8,000 in the year you open your first FHSA, and the lifetime limit is $40,000. A qualifying withdrawal is tax-free and does not have to be repaid, but you must meet every condition.
• RRSP Home Buyers' Plan: the withdrawal limit is currently $60,000, and withdrawn amounts must be repaid to your RRSP over up to 15 years.
• The FHSA and the Home Buyers' Plan can be used together for the same qualifying home, as long as you meet all the conditions at the time of each withdrawal.

What to do next

• Ask your lender or mortgage broker what gift documentation it requires, before the funds are transferred.
• Have the donor move the money into your account early enough to leave a clear paper trail.
• Decide honestly whether the money is a gift or a loan, and tell your lender if it is a loan.
• Keep copies of the signed gift letter and bank records.
• Talk to a lawyer if the donor wants any say in the home, such as being added to title or being repaid if you sell.

Frequently asked questions