Is a family member helping you put together your down payment for your home purchase? Getting a gift letter for your purchase is a must and a great way to increase your home buying power.
Firstly, what is a mortgage gift letter? A gift letter is a form from your lender that states the down payment funds have been given to you as a gift and that you’re under no obligation to repay the money.
A lender wants to ensure that you can afford your monthly mortgage payments and won’t fall behind on your mortgage payments owing to a borrowed down payment. Using “borrowed” funds for your closing costs is possible, but your lender and mortgage agent will need to factor this into your GDS and TDS ratios.
Here are some essential things to keep in mind when considering a gifted down payment.
1. The gifted funds must come from an immediate family member. This includes parents, grandparents, siblings, or an aunt/uncle. Friends or non-immediate family members are not able to supply a gift letter in Canada. This is because of the Anti-Money Laundering requirements that protect the lender against fraud.
2. Some lenders do require proof that the money is transferred into your account. In which case, your mortgage agent will request bank statements from you and potentially the person gifting the funds. If the giftor is an immediate family member, it doesn’t matter whether the funds came from a line of credit, a refinance, or savings.
3. The gift letter (provided by the lender) will state that the funds are a gift and do not need to be repaid. A gift is a gift, and a loan is a loan. It can be considered mortgage fraud if the gifted money is a loan.
Are you salaried, working full-time or able to show verifiable income? You can potentially have 100% of your down payment gifted from your family.
Are you stating your income? You may not qualify to have 100% of your down payment gifted.
Do you have questions about gifting or receiving funds for a down payment? Reach out to us at Ardent Mortgages, and we will be happy to walk you through the scenario.