With the real estate market rising dramatically in recent years, saving for a down payment on a property is becoming increasingly difficult. However, there are alternatives to the traditional ways of covering this amount.
Many parents choose to help their children become homeowners by offering part or all of the down payment as a gift.
The donation must come from a close family member (parent, spouse or even a guardian) and does not have to be repaid.
The donor must prove ownership of the funds through a bank statement identified in the donor’s name or even through borrowing capacity that would allow the donor to remit the cash to the recipient. Some lenders will also require a statement that demonstrates that the donor’s funds have been in the account for at least 90 days. In addition, other lenders will require validation of the availability of the gift and its deposit to the recipient’s account prior to issuing a final acceptance letter to authorize the loan.
A donation letter, signed by both the donor and the recipient of the gift, is often used to confirm that the funds will not be considered a loan. Proof that the funds were actually deposited into the buyer’s account is also requested. This letter provided by the lender on file may not be accepted if it is written by the donor or borrower.
During this process, the role of the mortgage broker is important, as he or she targets the right lender for your personal situation.
There is no tax liability for either the donor or the recipient of the gift.
We can also talk about the gift of equity, which is also considered an alternative solution to the down payment. It consists of transferring to a child or a close relative a property already owned at a reduced price. This reduction in price will represent the amount of the gift and will replace the traditional down payment. Of course, the lender will have the market value of the property appraised to validate the gift of equity. This can make it difficult to inflate the sale price to include the down payment and thus overfund the property subject to the mortgage. This solution is rare since it is related to a property already owned by a relative.
Again, the gift received is not taxable in the hands of the recipient(s).
If you dream of buying your own property and you have chosen one of these solutions to finance your down payment, do not hesitate to contact me. It will be my pleasure to meet with you on the Plateau to advise you and guide you in your approach.