What is a gift letter?

A mortgage gift letter is a notice from your donor declaring that the down payment funds have been given to you as a gift.

It shows a mortgage lender that you're under no obligation to return the money.

The lender wants to know that when you agree to make your monthly home loan payments, you won’t face the additional financial stress of having to pay back the donor. That could make you more prone to falling behind on your mortgage.

Mortgage lenders prefer that you owe your house to them and no one else.

The donor has to be an immediate family member, like a parent or a crazy rich uncle, and your lender may require proof that the money has been transferred into your bank account.

More: Best mortgage lenders in Canada

Good credit is important for getting the lowest mortgage rate, and sites like Borrowell can help you check your credit score for free. Don't wade into the housing market without knowing where you stand.

Check your score

Will I pay taxes on the gifted money?

There is no “gift tax” in Canada; your donor can give you as much money as they want without incurring any taxes.

In the United States, though, the limit is $15,000 per year before the tax man gets involved.

Down payment gift letter requirements and template

The gift letter must include the following:

  • Name of the mortgage borrower.
  • Donor's name, address, and phone number.
  • Donor's relationship to the borrower.
  • How much is being gifted.
  • Statement that the gift is not to be paid back (after all, then it's not a gift!)
  • New property's address.

Here's a good mortgage gift letter template you can use:

[Date]

To whom it may concern,

I, John Doe, hereby certify that I will give a gift of $5,000 to Jane Doe, my sister, on Jan. 1, 2020 to be applied toward the purchase of the property at 123 Main Street.

I certify that this payment is a gift and that there is no obligation, either expressed or implied, of repayment. No part of this gift was provided by a third party with an interest in buying the property, including the seller, real estate agent and/or broker.

I have given the gift from the account listed below, and have attached documentation to confirm that the money was received by the applicant prior to settlement.

The source of this gift is:

[Type of account]

[Name of financial institution]

Sincerely,

John Doe

[Signature]

321 Avenue Street

Anytown, ON

(123) - 456 - 7890

Let Homewise help you avoid the hassle of shopping mortgage rates from multiple lenders. This online brokerage will negotiate on your behalf with more than 30 banks and alternative lenders, completely free, to show you the lowest rate available to you on their platform — and it only takes five minutes to apply.

Get your free quote

Down payment gift rules and restrictions

Unlike the United States, Canadians don't have to fear a "gift tax". You can be gifted any amount of money at any time with no tax implications.

For conventional mortgage loans, a down payment gift typically must come from a family member. Anyone in a special relationship with the homebuyer — such as godparents or close family friends — must provide evidence of the relationship and there's no guarantee that the lender will accept the letter.

And then things get tricky if you're self-employed. When applying for the loan you need to come up with 5% of the purchase price on your own, and then gifts can cover the remaining 15%. The full down payment can be gifted if you’re employed full-time.

It's important to remember that although 100% of your down payment can be handled by family, you still need to impress the lender with an excellent credit score and solid income to show that you can handle the payments.

To keep those payments low, an online broker like Homewise can help you find the best mortgage rate.

You're 5 minutes away from the best mortgage

Searching for your perfect mortgage shouldn’t be hard.

Homewise is an online brokerage that will negotiate on your behalf with more than 30 big banks and other lenders, completely free, and it only takes five minutes to apply.

If you're in the market for a new mortgage, or if you're looking to refinance before interest rates rise again, go to Homewise now and answer a few simple questions to get started.

About the Author

MoneyWise

MoneyWise

MoneyWise Editorial Team

These articles were created by the MoneyWise editorial team.

What to Read Next

Disclaimer

The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.