Using a gifted down payment

A large share of first purchases in the Greater Toronto Area involve help from family. Lenders know this and have a settled process for it. The process is not difficult, but it is particular, and people lose deals by treating a gift casually.

What lenders need to see

Three things, in this order.

A gift letter. Signed by the person giving the money, stating the amount, the relationship to you, and the sentence that matters most: that the money is a genuine gift with no expectation of repayment. Most lenders have their own template and will want theirs used rather than one you write yourself.

The money in your account. Lenders want the gift transferred to you and sitting in your own account before closing, usually well before. What they are checking is that the funds exist and came from where the letter says they came from.

A trail they can follow. Bank statements showing the transfer out and the transfer in. If the money passes through several accounts, each hop needs to be visible. A deposit with no explanation is the single most common reason a file stalls late.

Why the paperwork exists

Two reasons, and neither is about mistrust.

The first is qualifying. A down payment that is really a private loan from a relative changes the calculation, because you would have a payment to make on it. The declaration that the money is not repayable is what allows the lender to leave it out of your debt ratios. Signing a letter saying a loan is a gift, when a repayment has been agreed privately, is misrepresentation on a mortgage application. That is not a technicality.

The second is anti-money-laundering law. Mortgage brokerages and lenders are required to verify where down payment funds come from. That requirement is why an unexplained deposit gets questioned, and why “my father gave it to me in cash” is a problem even when it is completely true.

Who can give a gift

Most lenders restrict gifts to immediate family: parents, grandparents, siblings, sometimes a spouse or a child. The further the relationship sits from that list, the more likely the lender is to ask questions or decline to treat it as a gift at all. Gifts from an employer, a seller, a real estate agent or anyone with an interest in the transaction are treated very differently, and often not accepted at all.

If the giver lives outside Canada, expect more documentation rather than less. The funds still have to be traceable, and the paper trail crosses a border, so build extra time into your schedule.

Things that catch people out

Cash. Physical cash cannot be traced, so depositing an envelope of it is the worst possible version of this. If a relative has cash savings, they need to deposit it into their own account and let it sit there before transferring it to you, and even then expect questions.

Last-minute transfers. A gift that lands two days before closing, from an account nobody has seen, invites exactly the scrutiny you do not want at that moment. Move the money early.

Treating the gift as the whole budget. A gift usually covers the down payment. It rarely covers land transfer tax, legal fees, the title insurance, the adjustments and the moving costs, and most lenders also want to see that you have something left afterwards. Work out the full closing figure before deciding what the gift needs to be.

Forgetting the giver’s own position. A parent releasing equity to help is making a financial decision of their own, sometimes by refinancing or drawing on a line of credit secured by their home. That side deserves its own advice, not an afterthought.

Both families giving. Two gifts means two letters and two sets of statements. It is entirely normal, just plan for the paperwork.

A note on repayment

Families often have an informal understanding: help now, pay us back when you can. That is a perfectly reasonable arrangement between people who love each other, and it is incompatible with a gift letter. If repayment is genuinely expected, say so. There are lenders and structures that can accommodate family loans, and the file can be built honestly around the real arrangement. The worst outcome is a signed declaration that does not match what everybody actually agreed.

What to do first

1. Confirm who is giving what, and whether it is truly a gift.
2. Have the money transferred into your account early and keep the statements.
3. Get the lender’s gift letter template rather than writing one.
4. Budget the closing costs separately from the down payment.

Handled in that order, a gifted down payment is routine. Handled at the last minute, it becomes the reason a closing gets delayed.