The Down Payment Gift, Simple on Paper, Not So Simple in the Details

Justine was buying her first home for $450,000. To meet the minimum 5% down payment, her parents had agreed to gift her $30,000, more than enough to cover her down payment and part of the closing costs. On the advice of a friend who’d gone through the same thing last year, she figured a simple letter signed by her parents would be enough.

That wasn’t wrong, but it wasn’t enough for her file either.

For an insured mortgage, meaning a down payment under 20%, the gift generally has to come from immediate family: parents, grandparents, siblings, whether by blood, marriage, common-law union, or adoption. A gift from an uncle, aunt, or close friend isn’t automatically refused, but it almost always requires extra justification, and some lenders refuse it outright. For a conventional mortgage (20% or more down), the rules are sometimes more flexible, but that varies by lender.

No matter the lender, a gift letter always has to confirm:

That’s the part Justine’s friend had gone through, and it’s the part most people already know about.

What her friend hadn’t told her is that every lender (and every mortgage insurer) has its own requirements for where the money comes from and when it needs to move. Some want to see the gift already sitting in the buyer’s account before the application is even submitted. Others accept a transfer a few days before closing, as long as the parents’ bank statement shows the funds were already there, to rule out the idea of a disguised loan.

What we checked first: before Justine even made an offer, we confirmed with the target lender exactly when and how the gift needed to move, which bank statements would be required from both sides, and when to produce the letter. The result: no last-minute surprises, and her parents’ transfer happened at the right time instead of in a scramble the night before closing.

A gift transferred too close to closing can force a delay, or worse, put financing at risk if the lender doesn’t have time to verify the source of funds under its own anti-money-laundering rules. It sounds like an administrative detail, but it can cost you your closing date.

We’re mortgage brokers, not notaries or tax specialists. The gift itself, its legal implications, and any tax questions for the donor should be confirmed with a notary or tax specialist before proceeding.

A family gift can make buying a first home much easier, but every lender has its own rules for documenting it. Our team can confirm exactly what to plan for, for you and for your family, before the offer goes in. Let’s talk it through together. As you probably already know, our services are free.