A gifted down payment can absolutely be used to buy a home in Canada, as long as you follow CMHC’s rules carefully. The money must come from an eligible family member, be non-repayable, and be properly documented to be accepted by both the lender and the insurer.
If you skip the paperwork or treat a loan like a gift, your mortgage approval could be delayed or denied. Here’s how to use gifted funds the right way, step by step.
What CMHC Defines as a Gifted Down Payment
Under CMHC policy, a gifted down payment refers to funds given freely by an immediate family member to help you buy a home. It must be a true gift, not a disguised loan, and there must be no expectation of repayment.
This is different from borrowing from a line of credit or getting help from a friend. Only gifts from people like parents, siblings, or grandparents are allowed.
Who Can Legally Gift You the Money?
CMHC requires that gifted funds come from immediate family members only. That includes:
- Parents or stepparents
- Grandparents
- Siblings
- Children
Friends, distant relatives, or business associates are not accepted sources, regardless of their intent. If you’re receiving funds from outside this circle, the money may be treated as a liability instead of an asset, affecting your mortgage eligibility.
How Much of the Down Payment Can Be Gifted?
You can use gifted money to cover some or all of your down payment. CMHC will still insure the mortgage as long as the funds are legitimate and properly documented.
In many cases, lenders will allow the entire minimum 5 percent down payment to be gifted. However, for higher purchase amounts or unique borrower situations, lenders may ask for proof of additional savings to show financial stability.
The Gift Letter: What It Must Include
Every lender and insurer requires a signed down payment gift letter. This serves as formal proof that the money is not a loan and will not need to be repaid.
The gift letter should clearly include:
- Full names of both the donor and the recipient
- Relationship between them
- Exact amount of the gift
- Confirmation that the funds are a gift and not a loan
- Signatures of both parties
- Date the funds will be transferred or were transferred
Most lenders have a standard template. It is critical to use their format or ensure your version covers all the above details.
Transferring the Funds: Timing and Transparency Matter
The transfer should be done well before the closing date—ideally two weeks or more in advance. Lenders will require a full paper trail that shows:
- The funds left the donor’s account
- They landed directly in your account
- No other source or third party was involved
Avoid cash transfers or mixing the gifted money with other funds until after documentation is submitted. This simplifies the audit trail and reduces any friction in the approval process.
What About Gifts from Outside Canada?
If you are receiving a gift from a family member who lives abroad, it is possible, but expect additional scrutiny. Lenders will ask for:
- Identity verification for the donor
- Proof of the source of funds
- Wire transfer records showing the money entering Canada
- Currency exchange confirmation if applicable
Start this process early. International gifts can take longer to verify and may delay your financing if not handled proactively.
Lender and Mortgage Type Considerations
Gifted down payments are accepted for both CMHC-insured and conventional mortgages, but policies may differ slightly between lenders. Some lenders prefer that you contribute a small portion of your own savings, especially if your credit score is below average or your employment is recent.
Even if CMHC approves the gift, the lender has the final say. It is best to work with a mortgage professional who understands these differences and can help structure the file for clean approval.
Common Mistakes That Lead to Rejection
These are the most frequent issues seen by lenders:
- Not providing a signed gift letter
- Accepting a gift from a non-eligible donor
- Failing to show a full bank-to-bank transfer trail
- Depositing the gift late and not allowing time for verification
- Labeling a repayable loan as a gift
Avoid these mistakes and keep all documents ready early in the home-buying process. Doing so protects your pre-approval and ensures the gift works in your favour.
Final Thoughts
You can absolutely use a gifted down payment to buy a home in Canada, but only if it aligns with CMHC rules and your lender’s requirements. That means the gift must be from a direct family member, given freely, and properly documented. If you want a smooth path to approval, Pradip Maheshvari can guide you through each step and ensure your mortgage application stands on solid ground.
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