Gifted Down Payment
Gifted Down Payments for First-Time Home Buyers
For many first-time home buyers in Alberta, saving up for a down payment can be a significant hurdle. With home prices rising, some buyers are turning to family members for support through a gifted down payment. This form of financial assistance can help buyers enter the market sooner and potentially secure a better home. But what exactly is a gifted down payment, and what are the requirements for using one?
Here’s everything you need to know about gifted down payments for first-time home buyers in Alberta.
What is a Gifted Down Payment?
A gifted down payment is money given to a home buyer—typically by a close family member—to cover part or all of the down payment for a home purchase. In Canada, lenders generally allow down payment gifts from immediate family members like parents, grandparents, or siblings. The gifted amount does not need to be repaid, making it a convenient option for buyers who may struggle to save up the required down payment on their own.
Example: If you’re purchasing a $400,000 home in Alberta and need a 5% down payment, you would require $20,000. With a gifted down payment, a family member could provide some or all of that amount.
How Does a Gifted Down Payment Work in Alberta?
To use a gifted down payment, lenders typically require a gift letter from the family member providing the funds. This letter confirms that the money is a gift and not a loan that needs to be repaid. While this letter is provided by the lender, the gift letter should include:
The name of the family member giving the gift.
The relationship between the buyer and the gift giver.
The gifted amount.
A statement that the funds are a genuine gift and not expected to be repaid.
Tip: Different lenders may have specific requirements for gifted down payments, so it’s best to check with your mortgage lender for their exact documentation needs.
Benefits of Using a Gifted Down Payment
Accelerates Home Purchase: With a gifted down payment, you may be able to enter the housing market sooner than if you were saving alone, allowing you to take advantage of current prices and avoid delays.
Reduces Loan Amount: Having a larger down payment from a gift could help reduce your mortgage amount, lowering monthly payments or even eliminating the need for mortgage insurance if you reach the 20% down payment threshold.
Eases Financial Strain: By receiving a portion of your down payment as a gift, you can keep more of your own savings as a financial cushion for moving expenses, home repairs, or emergencies.
Who Qualifies for a Gifted Down Payment?
Gifted down payments are primarily used by first-time home buyers, but they are generally available to any buyer who has a qualifying family member willing to assist. In Alberta, lenders often allow a gifted down payment as long as:
The gift comes from an immediate family member.
The buyer meets all other mortgage qualifications (income, credit score, etc.).
Note: If you are buying a property as an investment or rental, some lenders may have restrictions on using gifted funds.
Down Payment Requirements in Alberta
For a primary residence, Canadian lenders require a minimum down payment of:
5% for homes priced up to $500,000.
10% for the portion of the home’s price between $500,000 and $1,000,000.
20% for homes priced over $1,000,000 (as mortgage insurance is not available on these properties).
A gifted down payment can be applied toward any of these down payment tiers, helping buyers meet the required minimum amount.
Things to Keep in Mind with Gifted Down Payments
Documentation is Key: Lenders will require a gift letter and, in some cases, proof of the transfer of funds. Make sure to have this documentation ready to avoid delays in the mortgage approval process.
Plan for Extra Costs: Remember that the down payment is only part of the upfront costs. You’ll still need to budget for closing costs (such as legal fees, land transfer taxes, and inspections) and have a financial cushion for moving and potential renovations.
Impact on Future Finances: While a gifted down payment can reduce financial strain initially, consider how it might affect your budget down the line. Mortgage payments, property taxes, and maintenance costs will still require a stable financial plan.
Avoid Large, Sudden Deposits: Lenders may scrutinize large deposits in your account, so ensure that any gifted down payment funds are transferred early in the buying process and documented to avoid issues during approval.
Is a Gifted Down Payment Right for You?
Using a gifted down payment can be a valuable strategy, especially if you have supportive family members willing to help. It allows you to enter the market sooner, potentially secure a larger home, and even reduce mortgage insurance costs. However, it’s essential to work closely with your lender and prepare the necessary documentation to ensure a smooth application process.
Conclusion: Leverage Family Support to Achieve Your Homeownership Goals
For first-time home buyers in Alberta, a gifted down payment can make all the difference in achieving homeownership. With proper planning, documentation, and support from your lender, this option can help you move forward with confidence toward buying your first home.
Ready to explore your mortgage options with a gifted down payment? Contact me today to discuss how this approach can help you get into your dream home sooner.
