Understanding gifted down payments and how they could affect your mortgage.

There are many legitimate forms of down payments for Oakville purchasers. One source of down payment funds is a gift. This is very misunderstood and this article hopefully clears up the confusion about gifted funds. Here is a summary about who qualifies for gifted down payments and how it is processed by lenders and mortgage insurers:

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What is a gifted down payment:

A down payment can only be gifted by a parent, sibling or grand parent. It cannot be gifted by a friend or extended family member.

A gifted down payment is a true gift, not a loan. Both the donor and donee will sign a letter stating that there is no expectation to repay the gift.

Gifted funds can only be used for the down payment, not for the closing costs of the purchase. The closing costs must come from the borrower’s own resources.

Who qualifies for gifted down payments:

Gifted down payments can only be used for the purchase of a principal residence, not for rental properties.

Self employed purchasers who use stated income do not qualify for a gifted down payment. Gifted down payments are not just applicable to first time home owners, they are applicable to all principal residence purchasers.

The process required by lenders and mortgage insurers:

Although the gifting process may vary from lender to lender what is described below is fairly consistent for most lenders.

We will provide the donee with an official gift letter to be completed and signed by both parties. The letter will will request the exact gift amount. The donee will have to provide their own bank statements showing the exact amount disclosed in the gift letter deposited into their bank account. The amount on the bank statements must be exactly the same as the amount stated in the gift letter. This is an anti money laundering requirements.

The gifted amount must be in the donee’s bank account at least 15 business days before closing date.

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