For many Canadians in 2025, the only way to achieve homeownership is with financial help from family members. The good news is that lenders allow gifted money for down payments as long as buyers follow the proper steps. To do it right, you need to disclose the funds early, confirm the source, prepare a gift letter, transfer the money through traceable methods, and keep full documentation for lender review.
With housing affordability still a major challenge across the country, gifted funds remain one of the most common ways young families and first-time buyers get into the market. But while it is widely accepted, lenders are strict about how these funds are documented. That means understanding the process from start to finish is essential if you want to avoid delays in mortgage approval.
Step-by-Step Guide to Using Gifted Money for Down Payments
Using gifted funds is not complicated, but it requires careful attention to detail. Each step in the process serves a purpose, ensuring lenders feel confident the money is legitimate and truly a gift. Following these steps in order helps avoid unnecessary stress and speeds up mortgage approval.
Step 1: Talk to Your Mortgage Broker Early
The first step is to tell your mortgage broker right away if you expect to use gifted funds. Lenders have different rules about who can give the money and what documents are required. By sharing this upfront, your broker can match you with lenders who accept gifted money and guide you on how to prepare.
Early disclosure also speeds up approval. If gifted funds are introduced late in the process, lenders may need more time to verify them, which could delay closing.
Step 2: Confirm Who Can Gift the Money
In 2025, most Canadian lenders only accept down payment gifts from immediate family, such as parents, siblings, or grandparents. Some lenders extend this to close relatives, but gifts from friends, employers, or distant connections are usually not allowed.
The reason is that lenders want confidence the money is truly a gift, not a hidden loan that adds financial risk. Confirming the source early ensures there are no surprises when the application reaches the underwriting stage.
Step 3: Prepare a Proper Gift Letter
A gift letter is a non-negotiable requirement when using gifted money for down payments. This signed document confirms the money is a true gift with no expectation of repayment.
In 2025, a valid gift letter should include:
- Full Names of both the donor and the recipient
- The Exact Amount of the gift
- The Relationship between donor and recipient
- A Clear Statement confirming the money is a gift, not a loan
- Signatures And the date
Many lenders have their own template for gift letters. Using the lender’s version ensures you meet every requirement and avoid unnecessary back-and-forth.
Step 4: Transfer the Funds the Right Way
The way the money moves from the donor to the recipient matters just as much as the gift letter. Lenders require a clear, traceable paper trail to confirm the source of the funds. Large unexplained deposits in your account can raise red flags and slow down approval.
The safest approach is to use an electronic bank transfer or a bank draft. Funds should appear in your account well before closing day, ideally two to three weeks in advance, so the lender has time to review and verify them.
Step 5: Keep Documentation Ready for Verification
Even after you provide the gift letter and transfer proof, lenders may ask for additional supporting documents. This is where many buyers get caught off guard.
Typically, lenders want:
- Bank statements from the donor showing the money leaving their account
- Bank statements from the recipient showing the money being received
- Copies of the gift letter and transfer confirmations
Having these documents ready ensures your mortgage approval is not delayed and makes the process seamless.
Rules Around Gifted Money in 2025
Gifted money is widely accepted in Canada, but there are clear rules buyers must follow:
- CMHC and Lender Policies: Both require proof that the money is a genuine gift, not a repayable loan.
- Timing Requirements: Funds must be deposited before closing, often weeks in advance.
- Tax Rules: There is no gift tax in Canada, but all money must be properly documented for mortgage approval.
These rules are designed to protect both the borrower and the lender, ensuring affordability is accurately assessed.
Common Mistakes Buyers Make with Gifted Money
Even though the process is straightforward, some buyers make errors that complicate approval. Below are the most common mistakes and why they create problems:
1. Skipping the Gift Letter
Without a signed gift letter, lenders cannot accept the funds. This document is essential proof that the money is not a loan. Without it, your mortgage application will likely stall until the letter is provided, delaying the entire process.
2. Using the Wrong Donor
Lenders typically only accept gifted funds from immediate family. If the money comes from a friend or non-family member, it is almost always rejected. Choosing the wrong donor can mean your down payment no longer qualifies, leaving you short on closing day.
3. Depositing Funds Too Late
Last-minute transfers may not give the lender enough time to verify the money. Since mortgage approvals involve detailed reviews of bank statements, late deposits can raise unnecessary questions and result in approval delays.
4. Not Telling the Broker Early
If your broker finds out about gifted funds late in the process, they may need to rework your application with the lender. This wastes time and could even put your approval at risk. Disclosing gifted funds upfront ensures a smooth, stress-free process.
FAQs
Can a friend give me money for a down payment?
In most cases, no. Canadian lenders usually only accept gifts from immediate family.
Does using gifted money affect mortgage approval?
No, as long as the correct documents are provided, gifted money can actually strengthen your application by increasing your down payment.
Is gifted money taxable in Canada?
No, Canada does not tax gifted money, but lenders require clear documentation to approve it.
Can I combine gifted funds with first-time homebuyer programs?
Yes, gifted money can be used alongside federal and provincial programs, provided it meets all lender documentation rules.
Conclusion
Gifted money continues to play a vital role in helping Canadians enter the housing market in 2025. It is one of the most effective ways for families and first-time buyers to manage rising housing costs. The key is following the proper steps: disclose the gift early, confirm the source, provide a proper gift letter, transfer the funds in a traceable way, and keep documentation ready.
With the right preparation, gifted money makes homeownership more achievable and mortgage approval smoother. Partnering with an experienced mortgage professional like Pradip Maheshvari ensures every step is handled correctly, giving you confidence and peace of mind as you move toward buying your home.