Gifted down payments can be a valuable resource for homebuyers who need help with their upfront costs. Here's everything you need to know about using gifted funds for your down payment:
What is a Gifted Down Payment?
A gifted down payment is a sum of money given to a homebuyer by a family member, friend, or other third party to help cover the down payment on a home. The gift is typically provided with no expectation of repayment.
Who Can Provide a Gift?
Gifted funds can come from a variety of sources, including parents, grandparents, siblings, other relatives, or close friends. Lenders typically require a gift letter signed by the donor to verify that the funds are a gift and not a loan.
Gift Letter Requirements:
A gift letter is a document signed by the donor that states the amount of the gift, the relationship between the donor and the homebuyer, and that the funds are a gift and not a loan. The letter may also include the property address and the intended use of the gift.
How Gifted Funds Can Be Used:
Gifted funds can be used for the down payment, closing costs, or other upfront expenses related to the home purchase. However, lenders may have specific requirements regarding how gifted funds can be used, so it's essential to check with your lender.
Tax Implications:
In Canada, gifts are generally not considered taxable income for the recipient. However, there may be tax implications for the donor, depending on the amount of the gift and other factors. It's advisable for donors to consult with a tax professional before giving a gift.
Gifted Down Payment vs. Loan:
Using gifted funds for your down payment can be a good alternative to taking out a loan. A gifted down payment does not require repayment, so it can help reduce your overall debt burden.
Gifted Down Payment Requirements:
To use gifted funds for your down payment, you will need to provide a gift letter, proof of the donor's ability to give the gift (such as a bank statement), and documentation showing the transfer of funds to your account.
Using gifted funds for your down payment can be a great way to make homeownership more accessible. However, it's essential to understand the requirements and implications of using gifted funds before proceeding with your home purchase.
