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Down Payment Gift – How to Document It – By Rowan Smith a Vancouver Mortgage Broker

Transcript of Video Blog:

Hi everybody. It’s Rowan Smith from the Mortgage Centre here today to talk about down payment. Specifically I want to talk about gifts. A lot of times people will go to purchase a home, they will have a mortgage all in place, and then the bank will decline them because of their down payment. People will say, “What does it matter? I have the money. Why can’t I use it?” Because the bank is under an obligation to find out where those funds come from.

It’s just a matter of ensuring that the money isn’t from proceeds of crime or something else that sound fantastic and ridiculous to the average borrower but the bank, nonetheless, has an obligation to ensure that those are legitimate dollars. When you get a gift from a family member, that’s the only time it’s allowed, and it’s typically one step of family away meaning up to your parents or maybe to your grandparents or brother/sister.

Banks generally frown on things like uncle or second cousin twice removed gifting money. They certainly frown upon friends or business associates. They want to see a familial connection because it is considered a gift which means it’s non-repayable and that person that gave you that money will have to sign a letter that says there is no repayment ever required for those dollars.

If you’re looking to get a gift it’s not a problem, we just have to ensure that the people understand they are, in fact, giving you the money, will be signing to that effect, and that the funds are in your account. Those are three individual things. There are a few banks that will want to call and speak to the person to ensure that they’re actually giving you the money as well.

Now, are there ever times when gifts aren’t allowed? Yes. Some of the self-employed programs, stated income programs, and whatnot that exist don’t allow for the full amount of the down payment or sometimes any of the down payment to be gifted. This is a very tricky and important area so if you’re looking to buy something and are self-employed and perhaps you leave a lot of money in your company for tax reasons rather than taking it all out in personal taxes then what you’ve got to do is talk to me in advance.

We can structure this and show how to demonstrate your income to the bank through the manner that they want to see. That’s one of the rules on down payment and gifting.

If you know somebody that’s having a problem because their down payment is gifted and for some reason their bank is not allowing them to do the mortgage give me a call. I can offer you free second opinion, review the scenario, and see what can be done to satisfy the requirement. From the Mortgage Centre, I’m Rowan Smith.

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