Given the current market, it’s not surprising that many young people are accepting financial help from family members when buying their first home. In fact, just under 30% of first-time home buyers receive help from family, and the average financial gift is $82,000. In Toronto, the average amount is $130,000.
In a competitive market, it’s natural to want to help your child start their home ownership journey if you’re in the position to provide a financial gift. Here’s what you should know about helping your child buy a home.
What’s the best way to gift my child money for a home?
Helping out with the down payment is the most common way parents help their children purchase a home. If your child is short of a 20% down payment, it’s beneficial to help them reach that number—if only the minimum 5% is put down when purchasing a property, they’ll need to pay for mortgage insurance which means their monthly payments will be higher. Extra money for a down payment can also increase their budget and widen their home search.
Is your child self-employed? If so, they will have to pay 5% of the down payment themself to help prove to the lender that they can handle mortgage payments.
Can anyone provide a gift?
Immediate family members, including grandparents and siblings, in addition to parents, can provide a monetary gift for a down payment, but friends cannot.
Is there a gift tax?
Canada has no gift tax, so neither you nor your child will have to pay any taxes on the money provided.
What’s a mortgage gift letter, and why do I need one?
You’ll need to write a mortgage gift letter if you’re providing money for a down payment. This document offers transparency around the gift, helps the mortgage lender verify where the substantial amount of money is coming from, and confirms that it won’t need to be repaid by the recipient.
Most lenders have a letter template you can fill out. If you’re writing it yourself, include the following information:
- Your name and contact information
- The giftee’s information, including their relationship to you
- The amount of money you’re gifting
- A clear statement that the gift does not require repayment
- The address of the property being purchased
- Bank statements confirming deposit of the gift
Note that mortgage gift letters are only valid for 90 days. Want more information on gifts? Outline Financial has a guide to family gifting and we have access! Request it here: The Outline Guide to Family Gifting.