As home prices continue to rise across Canada, saving for a down payment has become one of the biggest challenges for first-time buyers. Even with programs like the First Home Savings Account (FHSA) and the Home Buyers’ Plan, many young buyers still find that these savings tools don’t go far enough.
That’s why an increasing number of parents are stepping in to help their child buy their first home. In fact, about one in three first-time buyers in Canada now receive financial help from family, often in the form of a gifted down payment. If you’re considering helping your child purchase their first home, here’s what you need to know to do it properly and protect everyone involved.
What Is a Gifted Down Payment?
A gifted down payment is money given by an immediate family member, typically a parent or grandparent, to help with the purchase of a home. Unlike a loan, it doesn’t need to be repaid, but lenders require clear documentation to confirm that it truly is a gift.
Gifted funds can make homeownership possible sooner and allow your child to qualify for a better mortgage rate. However, there are specific rules and timelines you’ll need to follow to keep the process smooth.
Who Can Gift the Down Payment?
Most Canadian lenders only accept gifts from immediate family (parents, step-parents, grandparents, or siblings). Some lenders will consider gifts from extended family members if the relationship can be verified, but gifts from friends or unrelated individuals are generally not accepted.
It’s best to discuss your situation with your lender early, especially if the funds are coming from outside Canada or from someone who isn’t a direct relative.
The Paperwork You’ll Need
To satisfy your lender, a few key documents are required:
- A Gift Letter: This confirms that the funds are a gift, not a loan. It’s typically signed by both the donor and recipient.
- Proof of Transfer: Your lender will want to see where the funds came from and that they’ve been deposited into the buyer’s account, usually at least 15–30 days before closing.
- Bank Statements or Wire Records: Especially if the funds are coming from abroad, you’ll need to provide a clear paper trail.
Proper documentation ensures there are no last-minute delays or questions about the legitimacy of the gift.
Timing and Transfer of Funds
Timing is key. Most lenders prefer to see gifted funds deposited in the buyer’s account 15 to 30 days before closing, though it’s always best to confirm your lender’s specific requirements. If the gift covers 20% or more of the down payment, the lender may require additional verification. For smaller down payments (less than 20%), insured mortgages often follow simpler rules, which can sometimes mean lower interest rates overall.
If the donor is outside Canada or the funds are coming from someone who isn’t an immediate family member, the money may need to be in the buyer’s account at least 90 days in advance to meet anti–money laundering requirements.
Allow extra time for wire transfers and currency conversions, and keep thorough records of every step. For international or non-immediate family gifts, the donor should provide a 90-day bank history showing the funds were in their name, along with wire transfer documentation and a confirmation of deposit once the funds reach your account. Providing a full paper trail helps your lender verify the legitimacy of the transfer and prevents last-minute issues at closing.
How Much Can Be Gifted?
Gifted funds can make up all or part of the required down payment, but the buyer still needs to meet Canada’s minimum down payment rules:
- 5% on the first $500,000 of the purchase price
- 10% on the portion between $500,000 and $1,499,999
- 20% on homes priced at $1.5 million or more
If the down payment is less than 20%, mortgage default insurance (like CMHC) is required, and the gifted funds must still meet the same documentation standards.
Are There Any Tax Implications?
In Canada, gifted down payments are not taxable for either the giver or the recipient. However, the donor may need to pay tax on any investment income or capital gains earned before the funds were gifted.
If the property generates rental income, that income will be taxed as usual, so it’s best to discuss any tax implications with your accountant before moving forward.
Protecting the Gift
If your child is married or in a common-law relationship, it’s wise to put some legal protections in place. Many families work with a lawyer to draft a cohabitation agreement or marriage contract that specifies the gifted funds remain separate property in case the relationship ends.
In some cases, parents may even register a lien or promissory note against the home to ensure the funds are protected. This should always be done with professional legal advice and full disclosure to the lender.
Avoid These Common Mistakes
Even well-intentioned gifts can cause stress if the details aren’t handled correctly. Here are a few pitfalls to avoid if you are helping your child buy their first home by gifting a downpayment:
- Sending multiple transfers: Ask your bank to send the full gift amount in one transaction for easier documentation.
- Gifting borrowed money: Lenders won’t accept gifts that come from a loan.
- Waiting too long: Funds arriving right before closing can delay or derail the deal.
- Skipping legal agreements: If relationship or ownership circumstances change, lack of documentation can lead to disputes.
The Bottom Line
Helping your child buy their first home is one of the most meaningful financial gifts you can give. When done right, it can set them up for long-term success.
If you’re considering gifting a down payment or helping your adult child enter the real estate market, the SAM team would be happy to walk you through the process. We can connect you with trusted mortgage and legal professionals, and help you find the right property to make it all worthwhile.
Let’s talk about your family’s goals and create a strategy that works for everyone.