Coming up with a down payment is one of the biggest hurdles Canadian homebuyers face. While tools like the RRSP Home Buyers’ Plan and the First Home Savings Account (FHSA) can help you save, they are often not enough.
In today’s market, where home prices continue to rise faster than earnings, more and more first-time buyers rely on financial help from family. This is where gifted down payments come in. These allow family members to gift money directly to the buyer, tax-free, which can then be used toward a home purchase.
In this article, we’ll cover everything you need to know about the rules for gifted down payments in Canada, including:
- What is a gifted down payment?
- Who can give a gifted down payment?
- How much money can be gifted as a down payment?
- Minimum down payment rules in Canada
- How to document a gifted down payment in Canada
- Timing and transfer of funds
- Protecting a Gifted Down Payment
- Common mistakes with gifted down payments
- Other ways family can help you buy a home
What is a Gifted Down payment?
A gifted down payment is money given by a friend or family member (most commonly a parent or grandparent) to help you make the down payment on a house. Unlike borrowed funds, gifted funds do not have to be repaid.
To use gifted funds you will need to present specific documents to your lender to prove that the funds were truly given as a gift.
Who can give a gifted down payment?
Technically anyone can send you money as a gift. However, most mortgage lenders in Canada will only accept gifted down payments from your immediate family (next of kin). This includes:
- Grandparents
- Parents
- Siblings
Some mortgage lenders will accept gifted down payments from extended family (like aunts, or uncles) if you can document your relationship, however this is less common. Gifts from friends or unrelated individuals are generally not accepted. That being said, if you are planning to receive a gift from somebody who is not in your immediate family, check with your lender to confirm eligibility. Additionally, you should plan to have the gifted money in your account for at least 90 days before the purchase date.
The reason that most mortgage lenders will only accept gifted down payments from immediate family is to reduce the risk that the money is actually an informal loan disguised as a gift. When money comes from parents or close relatives, lenders assume there’s a stronger likelihood that it’s a true gift, not an informal debt that the buyer will feel obligated to repay later. This ensures your debt-to-income ratio remains accurate and that you’re not taking on hidden liabilities that could affect your ability to make mortgage payments.
How much money can be gifted as a down payment?
In Canada, there’s no legal limit on how much money can be gifted for a down payment. You can receive any amount (whether it’s $5,000 or the entire purchase price of the home) and the Canada Revenue Agency (CRA) does not charge a gift tax.
Is tax charged on gifted down payments?
Under federal income tax law, cash gifts are not considered taxable income for the recipient. This means you won’t pay any tax on the amount you receive as long as it’s a genuine gift and not payment for services or work. The person giving the money (the donor) also doesn’t pay a separate gift tax. However, if they gift property or investments that have increased in value, then the donor may have to pay capital gains tax on the appreciated amount.
No province in Canada (including Quebec) charges a provincial gift tax either, so the same rules apply nationwide. That said, there are minimum down payment rules when buying a home.
Buyers Tip
Minimum down payment rules in Canada
In Canada, mainstream lenders are required to follow federal mortgage insurance regulations under the National Housing Act and the Insurable Housing Loan Regulations.
These rules set minimum down payment thresholds based on the homes purchase price:
- 5% on the first $500,000 of the purchase price
- 10% on the portion between $500,000 and $1,499,999
- 20% on homes priced at $1.5 million or more
For example, if your home price is $750,000, then your minimum down payment is $50,000.
If the down payment is less than 20%, the lender is required to purchase mortgage loan insurance. This insurance protects the lender against the risk of borrower default. The cost of this insurance typically ranges from 2.8% to 4% of the mortgage amount, and most lenders pass this cost on to the borrower.
For example, if your home costs $750,000 and you make the minimum down payment of $50,000, the lender will obtain mortgage insurance worth roughly $22,000–$30,000. This additional amount will be added to your mortgage balance and must be repaid as part of your regular monthly payments.
How to document a gifted down payment in Canada
Proper documentation is crucial to prove that gifted funds are a true gift, not a repayable loan. If your lender cannot verify this, they may decline your mortgage or reduce how much you can borrow. The lender may even revoke your approval after closing if the gift is later revealed to be a loan.
Here’s what you will need to confirm for your lender.
Document checklist for gifted down payments
| Document | Details |
| Gift Letter | Most lenders have their own template gift letter. They will give this to you when you apply for the loan. It must be signed by the donor and noterized. The letter must state that no repayment is expected. It must also include donor/recipient names, relationship, amount and date. |
| Donor Proof of Funds | The donor will need to provide a recent bank statement that indicates that the donor had the necessary funds available. |
| Proof of Transfer | A bank statement, wire or e-transfer receipt, or copy of the deposited cheque showing the donor’s name, amount, and date of transfer. |
| Timing Evidence | Lenders prefer that the gifted funds be deposited into your bank account at least 90 days before you apply. |
Timing and transfer of funds
Whilst each lender is different, most will require that the gifted down payment is transferred no later than 15 days before closing. Moreover, for funds coming from outside Canada, lenders typically want to see those in your (Canadian) account 30 to 90 days before closing. Different time limits sometimes also apply where the donor is gifting 20% or more of the purchase price of the property.
Because large one-time transfers can trigger anti-money laundering (AML) reviews, the timing of transfers is crucial. Lenders need enough time to review the documentation, trace exactly where the funds came from and confirm they are from a legitimate, non-borrowed source. Transferring funds too close to closing can create delays, trigger additional document requests, or even risk having your financing declined at the last moment.
Lastly, if you need to use a gifted down payment as a deposit, then you will need funds typically 2 – 4 weeks earlier. This is because the deposits is usually paid within 24 to 73 hours after your offer is accepted (Promise to Purchase in Quebec).
Buyers Tip
Protecting a Gifted Down Payment
If you are married or in a common-law relationship, it’s wise to think about how to protect a gifted down payment. Most people focus on mortgage approval and forget that, in the eyes of family law, a gifted contribution can become part of shared property if the relationship ends.
One common way to protect a gift is through a cohabitation agreement or marriage contract drafted by a lawyer. These agreements outline who contributed what to the home and how the property will be divided in a divorce. In most provinces, this type of agreement can override the default property-sharing laws.
In Quebec, the rules work differently from the rest of Canada and still require that the family home is shared equally in a divorce. However, it’s possible to sign a marriage contract before marriage, or later through a notary, to exclude certain gifts or contributions from division. Meanwhile, for de facto (common-law) couples, assets are not automatically divided upon separation, but it’s still wise to have a cohabitation agreement that sets out who owns what and clarifies the intent of any gifted funds.
Sometimes, families prefer to secure their contribution with a promissory note, loan agreement, or registered lien (called a hypothec in Quebec). These legal tools effectively treat the contribution as a loan rather than a gift, giving the donor the right to recover their money if the property is sold or the relationship ends. A registered lien or hypothec places a legal claim on the property title, meaning the donor must be repaid before other proceeds are divided.
One thing to be aware of here is that once a lien or loan agreement is in place, the funds are no longer considered a true gift. Rather they become a secured debt. This distinction matters because most lenders require the down payment to be a non-repayable gift. If a lien or loan is registered, the lender will usually view the donor as another creditor, which can complicate or even disqualify mortgage approval unless it’s disclosed and properly structured.
Taking the time to set up these protections before closing helps everyone involved. Mainly however, it ensures that the gifted down payment is protected and serves the intended recipient.
Common mistakes with gifted down payments
Gifted down payments are common in Canada, but even small missteps in how they’re handled can create major problems for both borrowers and lenders. These issues often surface late in the process, leading to financing delays, added stress, and in some cases, failed closings. Being aware of the risks early on can help you avoid surprises when it matters most.
- No proper gift documentation – Failing to provide a signed gift letter and proof of transfer can cause lenders to reject the funds.
- Transferring funds too late – Moving money right before closing doesn’t give lenders enough time to verify the source, leading to financing delays.
- Gifted funds that are actually loans – If the donor expects repayment, the money no longer qualifies as a gift and can void mortgage approval.
- Unclear money trail – Missing or mismatched bank records make it hard for lenders to trace the funds, triggering compliance issues.
- Not informing the lender early – Waiting too long to disclose a gifted down payment often results in last-minute document requests and stress before closing.
- No legal protection for the gift – Without a written agreement or lien, gifted funds may be treated as shared property if the recipient separates from a spouse or partner.
Other ways family can help you buy a home
Family members can help with a home purchase in several ways beyond simply gifting money. For example, they may be able to access equity from their existing home through a home equity line of credit (HELOC), take out a second mortgage, or co-sign on your mortgage to strengthen your application. Each option carries different risks, benefits, and implications, which are discussed below.
Home Equity Loan (HELOC)
If a family member already owns a home or a share in one, they may be able to access the equity in that property to help you with your down payment. This is often done through a Home Equity Line of Credit (HELOC). This is a flexible loan that allows homeowners to borrow against the value they’ve built up in their home.
With a HELOC, the bank conducts a home appraisal to determine the current market value of the home. The bank then looks at how much equity the homeowner has by subtracting the existing mortgage balance from the home’s current market value. The lender will then typically allow borrowing up to 65–80% of that equity. For example, if a home is worth $600,000 and the remaining mortgage is $300,000, the owner could potentially access around $180,000 through a HELOC.
Once approved, the homeowner can withdraw funds as needed, similar to using a credit card, and pay interest only on the amount borrowed. The money obtained this way can then be gifted to a family member as part of their down payment. The family member will then be required to repay the money borrowed over time.
This strategy is common among real estate investors, who use HELOCs to unlock existing equity and reinvest it into new properties. It can be a powerful wealth-building tool when used carefully.
Take a second mortgage on your home
Similar to a HELOC, if a family member already owns a home, they may be able to take out a second mortgage on that property to access cash for your down payment. A second mortgage is an additional loan registered on the title of the property, secured against the remaining equity after the first mortgage.
Unlike a HELOC, a second mortgage provides a lump-sum amount rather than revolving credit. Once the funds are advanced, the homeowner begins repaying the loan through regular installments of principal and interest over a fixed term. This makes it more like a traditional mortgage. It is less flexible than a HELOC, but often easier to qualify for with smaller banks or private lenders, especially if the property already has significant equity.
As with HELOC, the caveat to this is that the family member is required to repay the second mortgage over time.
Co-sign on a mortgage
An alternative to using a gifted down payment is for a family member (usually a parent) to co-sign on the mortgage. In this arrangement, the co-signer agrees to take legal and financial responsibility for the loan if the main borrower stops making payments.
This option is most often used when the home buyer has enough savings for the down payment but doesn’t yet have the credit score or income level needed to qualify for a mortgage on their own. By adding a co-signer with strong credit and stable income, lenders view the application as lower risk. This can help the buyer qualify for a higher loan amount or secure a better interest rate.
However, co-signing a mortgage is a serious commitment. The co-signer becomes equally liable for the entire mortgage balance and not just a portion of it. This means missed or late payments by the main borrower will appear on the co-signer’s credit report. This could affect their ability to borrow in the future. If the borrower defaults, the lender can legally pursue the co-signer for repayment.
A co-signing arrangement can be a powerful way for parents to help their children become homeowners, but it should be entered into with full understanding of the risks and legal obligations involved.
Final Thoughts
Gifted down payments can make homeownership more achievable, especially as housing prices rise faster than income levels however, they come with important rules and responsibilities.
Understanding how to document the gift, time the transfer and protect the funds legally can save you from last-minute financing issues or future disputes. Whether your family is offering a gift, a loan, or co-signing on a mortgage, clear communication and proper paperwork are key.
If you take the time to plan and document everything now, this will ensure the gift truly helps you build a stable financial foundation and keep your home purchase on track from start to finish.
