Understanding Gifted Down Payments
For many Canadians aspiring to own a home, the challenge of accumulating a down payment can be a significant hurdle. Fortunately, there's an option that extends a helping hand: the gifted down payment. In this blog post, we'll explore what a gifted down payment is and how it can be a game-changer for those navigating the path to homeownership.
A gift is defined as any moneys that are in a bank account that does not have the borrowers name on it. For example, if parents are holding onto the funds for the child until they’re ready to purchase, that could be considered a gift. The funds are in the parent’s account, in the parents name. If they plan to give those funds to the child, it would then be handled as a gift, even if the origination of the funds came from the child.
A gifted down payment is a financial contribution towards the down payment on a home, provided by a family member or relative. This gift is typically given with the intention of supporting the recipient's goal of purchasing a home and entering the real estate market.
A gift letter typically includes details such as the donor's relationship to the homebuyer, the amount of the gift, confirmation that it is not a loan, and sometimes the source of the funds. Both the donor and the recipient may need to sign the letter.
A gifted down payment can positively impact a homebuyer's mortgage approval, as it contributes to the overall down payment amount. This, in turn, can affect the loan-to-value ratio (LTV), potentially improving the terms of the mortgage.
If you're considering gifting a down payment or receiving one, open communication is crucial. Discuss expectations, intentions, and any requirements from the lender. Generally, the person gifting the funds would need to not only provide a gift letter, but also a statement from their bank account, showing a 90 day history of the money in question.
Many first-time home buyers use gifted funds to assist in their down payment and therefore, it’s quite a common practice. Most lenders approve the use of these funds and it’s typically a seamless transaction.
A gifted down payment can be a lifeline for those aspiring to own a home. Whether you're the generous family member offering assistance or the recipient on the receiving end, understanding the process and adhering to lender guidelines is crucial. The gift of a down payment not only facilitates homeownership but also reinforces the spirit of support and shared dreams within families. If you're exploring this option, consult with professionals to navigate the process seamlessly and embark on your homeownership journey with confidence.
For more information on gifted down payments, please contact My Mortgage Ladies.
