Putting together a down payment can be one of the biggest hurdles to homeownership. With help from Mortgage Connection, you can navigate these challenges with clarity.
If you have family members who want to help with a financial gift, your lender will need official proof that the money is truly a gift and not a loan you have to repay, which can affect how much you need for a down payment. This is where a gift letter comes in.
Gift Letter Definition: A gift letter is a signed document that states the funds you received for a down payment are a true gift with no expectation of repayment.
It proves to the lender that this money won’t add to your overall debt load, which helps them accurately assess your financial situation for a mortgage.
Gift Letter for a Mortgage: Explained
When you apply for a mortgage, lenders look at your income, savings, and debt to see if you can afford the loan. If a large sum of money suddenly appears in your bank account, they need to know where it came from. The lender wants to be sure this new money isn’t an unlisted loan that could impact your ability to make your mortgage payments. This is a key step when you prepare for mortgage pre-approval, so everything is transparent.
A gift letter clears up any confusion. It’s a formal statement that confirms the money is a gift and you are not required to pay it back. This simple document is a key piece of paperwork that keeps your mortgage application moving forward without unnecessary delays or questions.
Who Can Give You a Mortgage Gift?
Acceptable Gift Sources
Lenders have specific rules about who can provide you with a down payment gift. They want to confirm the gift is from someone with a close relationship to you, reducing the chance of it being a disguised loan.
In most cases, the gift must come from an immediate family member. This typically includes your parents, grandparents, or legal guardians. Some lenders may also accept a gift from a sibling, but it’s always a good idea to confirm their specific requirements first as part of the overall home-buying process.
Key Information for Your Gift Letter
What to Include in the Letter
For a gift letter to be valid, it must contain several key pieces of information. This is especially important for a first-time home buyer, as any delays can be stressful. The letter should be clear, simple, and direct to avoid holding up your mortgage approval.
All lenders have their own gift letter template that usually include the following details. Your mortgage advisor will send the applicable letter to be filled out.
- The giver’s full name, address, and their relationship to you.
- Your full name, as the person receiving the gift.
- The exact dollar amount of the gift.
- A clear statement that the money is a gift and not a loan that needs to be repaid.
- The date the funds were transferred, along with signatures from both you and the giver.
Rules & Requirements for the Gifted Funds
Important Things to Know
Besides the letter itself, there are rules about the gifted money. Lenders need to see a clear paper trail to verify the funds. This process shows that the money is legitimate and readily available for your down payment. This financial clarity is just as important as understanding other expenses, like your mortgage closing costs.
Keep these points in mind when you receive a gifted down payment:
- The person giving the gift may need to be able to prove they have the funds, usually with a bank statement.
- The money typically needs to come from a Canadian bank account.
- It’s helpful to deposit the gifted funds into your own account well before you apply for a mortgage to let the money “season.”
Why Professional Advice Helps
Navigating the rules around gifted down payments can seem complicated, as different lenders may have slightly different requirements. A small mistake on your gift letter or an improper fund transfer could create setbacks in your home-buying journey.
Understanding the benefits of a mortgage broker shows why working with an experienced professional can help you manage these details smoothly. A professional can review your situation, explain your lender’s specific rules, and help you prepare all the necessary documents correctly the first time. This guidance helps you avoid simple but costly errors and supports a stress-free approval process.
Our team at Mortgage Connection provides clarity and support as you navigate your mortgage. When you need a knowledgeable guide to help you make informed decisions, contact our team of mortgage brokers in Calgary and Edmonton.
