Gifted Funds As A Down Payment Option – Mortgages

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Yes, Vancouver is the most unaffordable housing market in Canada. But determined home buyers are still trying to get their foot in the door, in order to get in before it’s too late and the lowest rung on that ladder is even further out of reach.

 

The average price for all residential properties in Vancouver is $889,100 ($1.5 million if you want a detached home). And if you want to avoid paying mortgage insurance premiums, you need to come up with 20% as a down payment. For the average consumer, it’ll cost more than 20 years to come up with a down payment, according to a report by Generation Squeeze titled “CODE RED: Rethinking Canadian Housing Policy.”

 

Can’t wait that long? You’d better find some family members who are willing to contribute to your housing fund.

 

Shaun Zipursky, a broker with City Wide mortgage services in Vancouver, says that they’re seeing many more gifted funds than they have in years past, particularly for young professionals.

 

“We’re seeing a lot of clients that are coming in with massive amounts of gifts, six-figure gifts,” Zipursky says. “So families are really trying to help out in keeping their kids in the housing market in the areas that they want to be in.”

 

Showing proof and documentation of gifted funds

 

But even if you are getting a gift in order to buy a home in Vancouver, there are some things that you need to know about a gifted down payment. The first is that it’s widely accepted by most lenders. You will simply need to provide documentation to show that it is, in fact, a gift as opposed to a loan, and the funds were legitimately given. This documentation can be in the form of what is known as a ‘Gift Letter’, a signed document from the giver that states the specified amount doesn’t have to be repaid, as well as documentation from the recipient’s bank account that proves the funds have been transferred. If there are two people buying the home, then the giver can stipulate that the gift is only being given to one person, meaning that the amount is off limits if, for example, the couple buying the home parts ways in the years to come.

 

100% of your down payment can be gifted, unless you’re unemployed, in which case 5% of your down payment must come from your own funds. If you have a wealthy and benevolent friend, however, you’re out of luck; gifted down payments are only allowed from family. Regardless of whether it’s your mother or your grandfather who gives you the money, it needs to be in your bank account at least 15 days prior to closing.

 

Make sure that you let your mortgage professional know that you are being gifted funds before beginning the preapproval process, so they can walk you through your lender’s requirements. And as wonderful as it is to have someone give you cold hard cash to get you into your home, use a Canadian mortgage calculator to take a hard look at your finances to make sure that you can afford your home once you get into it. Property taxes, utility bills, and maintenance costs are all things that you’re going to be responsible for in addition to your monthly mortgage payment, and chances are you won’t be gifted the funds to take care of those for the next 25 years.

 

Of course, if you want to buy a home in Vancouver on your own – or simply don’t have any relatives with wads of cash lying around – you could always follow the #dontneed1million movement and find peace in a condo. You could potentially save a lot of time and money in commuting costs over the life of your mortgage.

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