GIFTED DOWN PAYMENTS – KEY CONSIDERATIONS

A March 15, 2022 CTV article (What are gifted down payments and how do they work? Jennifer Ferreira) discussed key considerations to be factored for those giving or receiving a gifted down payment.

All parties should be clear as to the form of the transfer – is it a gift or a loan? Gifts do not need to be repaid and will not impact the recipient’s ability to borrow funds. On the other hand, loans must be repaid and may impact the individual’s ability to obtain a mortgage from a financial institution. Once an amount is gifted, it cannot be recovered as it is a non repayable amount.

While a gift may allow an individual to acquire a particular mortgage, the financial institution will still review the borrower’s credit worthiness based on income and expenses to ensure the individual can satisfy future mortgage payments. Other additional items addressed include the following:

• documentation – all parties to the gift should sign a mortgage gift letter that outlines the names of those providing and receiving the gift, their relationship, the amount of funds and their contact information;

• fund transfer – funds should be provided directly to the homebuyer and transferred at least 15 days prior to the closing date;

• taxation – there is no tax on the gift of cash; and

• gifter’s financial situation – where a parent remortgages their own home to assist with a child’s home purchase, they must ensure that they can meet their own debt obligations.