# Assistance from parents for down payment



## Hercules2017 (Feb 2, 2017)

We are getting help from parents to pay for our down payment on a house. They are taking out a HELOC to give us the money for downpayment. We will also apply for a mortgage to make up the remaining for the house purchase. We have RRSP, TFSA and savings with a combined income of 120k. Will this affect our mortgage application?


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## Just a Guy (Mar 27, 2012)

No, they'll probably have to provide a letter stating the money is a gift, but the bank can't look at their financial situation. 

Your financial situation is all that matters to the bank.


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## Hercules2017 (Feb 2, 2017)

Is there a limit on how much they can give you?


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## Mortgage u/w (Feb 6, 2014)

It does not really affect your mortgage application other than the source of down-payment will be in the form of a gift. There is no limit for the amount to be gifted. As already mentioned, you're parents will have to sign a gift letter to ensure the money is indeed gifted and not repayable. You will have to provide proof that the funds are deposited and in your possession. If your parents are not gifting you the funds or are not willing to sign the gift letter, then the funds will be assumed to be borrowed. This _will _affect your qualification where the down-payment will be considered to be borrowed and will be factored into you debt obligations.


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## Eder (Feb 16, 2011)

Hercules2017 said:


> They are taking out a HELOC to give us the money for downpayment.


Your parents need to give their head a shake.


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## CalgaryPotato (Mar 7, 2015)

Wait, are they giving it to you or lending it to you?

Because if your parents are taking out money from their own house to give to you, so you can afford a bigger home, you should think about re-evaluating your priorities.


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## Mortgage u/w (Feb 6, 2014)

^^^^ its funny you mention that but you would be surprised to know the measures people take just to get a mortgage. Most are purchasing with only 5% down and its scary to know that they don't even have the 5% saved up. 

Its been a growing phenomenon where a "gift" is becoming the standard source of down-payments. With the increase of housing prices and of consumer debt, combined with a lack of financial knowledge, consumers are finding creative ways to get the home they cannot afford. For qualification purposes and in the lender's eyes, a gifted down-payment is taken at face value. The reality is the 'gift' is only presented as a gift in order to increase one's lending capacity. The truth is, most "gifts" are concealed, borrowed funds - just like the OP's situation. Whether the OP will repay his/her parents or not, the fact remains that the funds are borrowed. Even more troubling, most borrowers with a gifted down-payment simply borrow off a line of credit or obtain 2nd mortgages are high interest rates after their purchase has gone through.


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## 319905 (Mar 7, 2016)

I'm "giving" my son $10K towards his first house to get him out of about $5K CMHC. I'm required to provide the lender a "gift card" stating the $10K is a gift. Fintrack ... money laundering ... is behind much of this I'm guessing. Ok, I'm off to find an "appropriate" gift card :biggrin:


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## Mortgage u/w (Feb 6, 2014)

rikk2 said:


> I'm "giving" my son $10K towards his first house to get him out of about $5K CMHC. I'm required to provide the lender a "gift card" stating the $10K is a gift. Fintrack ... money laundering ... is behind much of this I'm guessing. Ok, I'm off to find an "appropriate" gift card :biggrin:


your better off having your son pay/finance the insurer fee than lending him the money. Your loan repayment will put a burden on him whereas the insurer fee is diluted in his mortgage payment.

If saving $5000 was of such concern, you should 'gift' him the lesson to save more before purchasing.


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## 319905 (Mar 7, 2016)

^ You my friend, are a complete idiot ...


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## Earl (Apr 5, 2016)

He's not, actually, what he's saying makes sense. If your son can't save up an additional 10k he has no business buying a house. I can save 10k in only 5 months. What if he gets a big leak in the basement that requires thousands of dollars to fix, or needs a new roof, there goes 15k. People shouldn't use their last dollar to buy a house, they need to have a reasonable rainy day fund.


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## Mortgage u/w (Feb 6, 2014)

rikk2 said:


> ^ You my friend, are a complete idiot ...


Your comment leads me to believe I insulted you in some way - I would like to know how. 
Before defending whatever point you may have, you should think long and hard about an intelligent argument before posting. 

Thanks Earl for supporting my post. Glad I'm not the only one with the same line of thinking.


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## Emjay85 (Nov 9, 2014)

Mortgage u/w said:


> Your comment leads me to believe I insulted you in some way - I would like to know how.
> Before defending whatever point you may have, you should think long and hard about an intelligent argument before posting.
> 
> Thanks Earl for supporting my post. Glad I'm not the only one with the same line of thinking.


You insulted him by not supporting him gifting money to his son. Without knowing the details of the situation I would have to agree that it is a bad idea. I don't need to state the obvious, which is posted above, but, once that tap is on, it is terribly hard to shut it off. For the reasons listed in other posts, the helping will not end.


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## 319905 (Mar 7, 2016)

Emjay85 said:


> You insulted him by not supporting him gifting money to his son. Without knowing the details of the situation I would have to agree that it is a bad idea. I don't need to state the obvious, which is posted above, but, once that tap is on, it is terribly hard to shut it off. For the reasons listed in other posts, the helping will not end.


I'm not insulted ... just astounded by such an off topic conclusion about the situation, and advice. For example, how is adding $5K CMHC to a mortgage where the lender collects the interest when not necessary a good idea??? How is teaching a son/daughter/anyone anything (more) about saving relevant when he/she/they has/have within 2 years renting accumulated a down payment??? Hence ... idiot.

The point I think ...lenders need to know where all the money's coming from ... fintrack I think, they require gifts to be identified in a "gift card" ... hilarious we think ... we also think a Valentines Day Card ... little teddy bears, hearts, something along those lines is appropriate.

Off topic: And ... it's a nice little house, in good shape ... went over it with the inspector yesterday ... good guy, a P Eng of all things ... a few items identified ... no show stoppers, with mortgage and ongoing expenses less than renting, saves considerable commuting time ... and it'll be paid off in 2-3 years. I could go on but I have to go pick out a gift card :love_heart:


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## Mortgage u/w (Feb 6, 2014)

^^
You wrote "giving" a gift in quotation leading me to believe its not a gift but in fact a loan. So it makes sense for your son to save $20.00 a month on his mortgage payment by not paying the insurer premium, yet paying you back $10,000 over xxx amount of years is more logical? At $20.00 a month, it will take your son 40 years to pay you back - interest free! 

Hence why paying the premium at $20 per month, rikk2, makes more sense than trying to repay $10k in a reasonable amount of time. Even if you want to be paid back in 5 years, your son will have a payment burden of $165 / mth vs $20 - again, interest free.

Keep your $10k and help him in other ways. The insurer premium is the least of your concerns.


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## 319905 (Mar 7, 2016)

^ ???


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## lightcycle (Mar 24, 2012)

Mortgage u/w said:


> ^^
> You wrote "giving" a gift in quotation leading me to believe its not a gift but in fact a loan. So it makes sense for your son to save $20.00 a month on his mortgage payment by not paying the insurer premium, yet paying you back $10,000 over xxx amount of years is more logical? At $20.00 a month, it will take your son 40 years to pay you back - interest free!
> 
> Hence why paying the premium at $20 per month, rikk2, makes more sense than trying to repay $10k in a reasonable amount of time. Even if you want to be paid back in 5 years, your son will have a payment burden of $165 / mth vs $20 - again, interest free.
> ...


I'm with rikk2... I'm trying to work out your math above.

Even if the $10K is not a gift, but an interest-free loan, it's still part of the purchase price of the house. It's not $10K added on to the price of the house... It has to be repaid the same, whether to the bank or rikk2.

Help me understand?


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## Emjay85 (Nov 9, 2014)

rikk2 said:


> I'm not insulted ... just astounded by such an off topic conclusion about the situation, and advice. For example, how is adding $5K CMHC to a mortgage where the lender collects the interest when not necessary a good idea??? How is teaching a son/daughter/anyone anything (more) about saving relevant when he/she/they has/have within 2 years renting accumulated a down payment??? Hence ... idiot.
> 
> The point I think ...lenders need to know where all the money's coming from ... fintrack I think, they require gifts to be identified in a "gift card" ... hilarious we think ... we also think a Valentines Day Card ... little teddy bears, hearts, something along those lines is appropriate.
> 
> Off topic: And ... it's a nice little house, in good shape ... went over it with the inspector yesterday ... good guy, a P Eng of all things ... a few items identified ... no show stoppers, with mortgage and ongoing expenses less than renting, saves considerable commuting time ... and it'll be paid off in 2-3 years. I could go on but I have to go pick out a gift card :love_heart:


If he is able to pay off a house in 2-3 years how is 10k required to come from you? Shouldn't 10k be able to be saved in a very short period of time on his own?

Aside from all that, sounds like you have it all worked out. I'm pretty sure I just wish someone would gift me 10k too!


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## Mortgage u/w (Feb 6, 2014)

lightcycle said:


> I'm with rikk2... I'm trying to work out your math above.
> 
> Even if the $10K is not a gift, but an interest-free loan, it's still part of the purchase price of the house. It's not $10K added on to the price of the house... It has to be repaid the same, whether to the bank or rikk2.
> 
> Help me understand?


Rikk2 finds it logical to lend his son $10k in order to save $5k in insurer fees. My point is that if the $5k is added to the loan, it represents an extra $20 per month on his mortgage payment. In order to save the $5k ($20/mth), he wants to borrow $10k from Rikk2. If its a true gift, by all means go ahead and give it - who wouldn't want to save? If its a loan, what kind of payment would he have to make to repay the $10k in a reasonable amount of time? As mentioned, if he pays $20 a month (equivalent if it were added to the loan), it will take 40 years to get back his money - interest free. So why borrow $10k when you can just borrow $5k??


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## Woz (Sep 5, 2013)

With or without the insurance, he’d still need to borrow the $10k. With insurance he can borrow the $10k from the bank plus $5k for the insurance. Without insurance he can’t borrow the $10k from the bank and needs to borrow it from Rikk2. The $5k insurance fee is pure savings by borrowing from Rikk2. Why borrow $15k when you can just borrow $10k?


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## Mortgage u/w (Feb 6, 2014)

Woz said:


> With or without the insurance, he’d still need to borrow the $10k. With insurance he can borrow the $10k from the bank plus $5k for the insurance. Without insurance he can’t borrow the $10k from the bank and needs to borrow it from Rikk2. The $5k insurance fee is pure savings by borrowing from Rikk2. Why borrow $15k when you can just borrow $10k?


Do the math on how much it will cost to repay the $10k vs paying the insurance. 

And with that logic in mind, why not have everyone borrow their 20% down-payment on a line of credit so they can all save the insurance?


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## Woz (Sep 5, 2013)

Mortgage u/w said:


> Do the math on how much it will cost to repay the $10k vs paying the insurance.


The comparison isn’t repaying the $10k vs paying the insurance though. It’s repaying the $10k to Rikk2 vs repaying $10k to the bank plus $5k for insurance. By borrowing from Rikk2 he doesn’t need to pay for insurance and he can borrow $10k less from the bank.



Mortgage u/w said:


> And with that logic in mind, why not have everyone borrow their 20% down-payment on a line of credit so they can all save the insurance?


If the LOC rate’s the same as the mortgage rate then that would be cheaper. The rules are meant to prevent you from borrowing your downpayment, but the whole “gift” thing is essentially a loophole.


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## Earl (Apr 5, 2016)

rikk2 said:


> Off topic: And ... it's a nice little house, in good shape ... went over it with the inspector yesterday ... good guy, a P Eng of all things


So not only did you help him financially, but you even handled the inspection for him? Were you part of the price negotiations too? I fear for our country with all these overgrown kids running around.


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## Mortgage u/w (Feb 6, 2014)

Woz said:


> The comparison isn’t repaying the $10k vs paying the insurance though. It’s repaying the $10k to Rikk2 vs repaying $10k to the bank plus $5k for insurance. By borrowing from Rikk2 he doesn’t need to pay for insurance and he can borrow $10k less from the bank.


Yes, I understand. My point is paying back a private loan in a reasonable amount of time is not advantageous when compared to paying the insurance.



Woz said:


> If the LOC rate’s the same as the mortgage rate then that would be cheaper. The rules are meant to prevent you from borrowing your downpayment, but the whole “gift” thing is essentially a loophole.


The gift thing is indeed a loophole and the rules _do _allow you to borrow your down-payment. The reason everyone presents it as a gift is to have more borrowing power. 

I think we can all agree that financing your down-payment is not a good thing.


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## 319905 (Mar 7, 2016)

Earl said:


> So not only did you help him financially, but you even handled the inspection for him? Were you part of the price negotiations too? I fear for our country with all these overgrown kids running around.


Speaking of overgrown kids, you guys are absolutely hilarious ... I sincerely hope your investment analysis and conclusions are a little less crystal ball than the above. I was invited along, enjoyed the experience, learned a lot, and got a hands on experience which I may consider (didn't say I will) for my next place ... my son is aware I'll be looking for another place in a year or two ... nice to have a son looking out for me. I never before considered a house inspection, always did it on my own ... this guy is good, produced a comprehensive report same day. Worth it for even a house savvy person, my experience.


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## Eder (Feb 16, 2011)

I spent my working life in construction, I never met a "house inspector" that I did not think was flipping burgers for a living the week before.


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## OhGreatGuru (May 24, 2009)

rikk2 said:


> I'm "giving" my son $10K towards his first house to get him out of about $5K CMHC. I'm required to provide the lender a "gift card" stating the $10K is a gift. Fintrack ... money laundering ... is behind much of this I'm guessing. Ok, I'm off to find an "appropriate" gift card :biggrin:


It has nothing to do with FINTRAC. The various rude exchanges over the wisdom of "gifting" to adult children; and the obscure financial analyses are also irrelevant.

As noted by others, your quotation marks on "giving" imply it is actually a loan, not a gift. Your son is required to inform the mortgagor of any other debts he has. By claiming this as a "gift", he is making a fraudulent misrepresentation. This problem of parents making "gifts" that are really loans is a plague on the mortgage industry, and everyone knows it's being done to circumvent the lending rules on mortgages. Which is why mortgagors are asking for written statements. It's not much of an assurance if the parents are prepared to lie; but it gives CMHC a reason to refuse to pay if the mortgage goes into default; and someone else for the mortgagor to sue if that happens.


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## 319905 (Mar 7, 2016)

OhGreatGuru said:


> It has nothing to do with FINTRAC. The various rude exchanges over the wisdom of "gifting" to adult children; and the obscure financial analyses are also irrelevant.
> 
> As noted by others, your quotation marks on "giving" imply it is actually a loan, not a gift. Your son is required to inform the mortgagor of any other debts he has. By claiming this as a "gift", he is making a fraudulent misrepresentation. This problem of parents making "gifts" that are really loans is a plague on the mortgage industry, and everyone knows it's being done to circumvent the lending rules on mortgages. Which is why mortgagors are asking for written statements. It's not much of an assurance if the parents are prepared to lie; but it gives CMHC a reason to refuse to pay if the mortgage goes into default; and someone else for the mortgagor to sue if that happens.


Fintrac, the prevention of money laundering is the issue ... period.


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## Just a Guy (Mar 27, 2012)

One of the reasons most people can't borrow the 20% down payment is because the lender takes all debt into consideration when qualifying the person for the loan. By getting a gift from the family, there is no "claim" against the borrower, so the bank gets first grab at the assets (parents are out of luck trying to legally collect). 

The parent's debt is their problem, not the lending bank. The lending bank is in the business of minimizing their risk, not the parents nor the borrower. Cmhc doesn't protect the borrower, it protects the bank, a 20% down payment is equally as good protection as far as the bank is concerned (though personally I think that it's not very good protection if interest rates increase). 

The $10k to save cmhc is probably very wise considering if the borrower lost his house, cmhc may later come back and try to further reclaim what they paid out to the bank. With no cmhc, he's still on the hook for most provinces (except Alberta and Saskatchewan where they still have non recourse mortgages), but didn't have to pay the "insurance" and the interest on the insurance only to find he wasn't actually covered or protected in any way.


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## TomB19 (Sep 24, 2015)

Hercules2017 said:


> We are getting help from parents to pay for our down payment on a house. They are taking out a HELOC to give us the money for downpayment. We will also apply for a mortgage to make up the remaining for the house purchase. We have RRSP, TFSA and savings with a combined income of 120k. Will this affect our mortgage application?


Have them provide the money three months prior to your mortgage application so you can the balance in your account for 90 days and carry on. If the money shows up at the last moment, you will need to document the gift.


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## Joe Black (Aug 3, 2015)

rikk2 said:


> Fintrac, the prevention of money laundering is the issue ... period.


I'm sorry but I'm pretty sure you are wrong and OGG is correct. FINTRAC is only about the bank's requirement for reporting transactions above $10,000 to detect money laundering. The fact that you are "gifting" or "loaning" is irrelevant to this reporting.

As OGG said, your mortgage eligibility is based partly on your current debt load. That's why the bank needs to know if your son as taking on more debt from a loan from you.


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## twa2w (Mar 5, 2016)

Joe Black said:


> I'm sorry but I'm pretty sure you are wrong and OGG is correct. FINTRAC is only about the bank's requirement for reporting transactions above $10,000 to detect money laundering. The fact that you are "gifting" or "loaning" is irrelevant to this reporting.
> 
> As OGG said, your mortgage eligibility is based partly on your current debt load. That's why the bank needs to know if your son as taking on more debt from a loan from you.


Generally true on the fintrac. Cash transactions over 10 k or cash transactions adding to 10 k within a short period are reported to fintrac. Suspicious transactions are also reported as well as certain wire transfers and certain money movements involving certain countries. There is no way fintrac could possibly look at all the transactions over 10k. There also other rules such as lawyers being unable to accept cash for trust account transactions. Most of the banks have pretty good software for spotting patterns etc for stuff the branches don't pick up.


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## twa2w (Mar 5, 2016)

Most banks require a gift letter for a cash gift to assist with a house purchase not a fancy card. Some even have a pro forma example with the wording they are looking for.
Part of the reason there is a requirement for non borrowed funds, ie savings or a family gift is there is more skin in the game for the borrower. If you saved or scrapped like crazy you are less likely to let the house go into foreclosure than if you borrowed 100% or close to it. Same if grampa or mom and dad lend you the money, you wont want to let them down. Perhaps it works the same way if mom and dad borrow - you really don't want to let them down.
Some banks are also ok with a letter showing some future repayment, like repymt when the house is sold. ( protects parents money in case of divorce)


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## 319905 (Mar 7, 2016)

Joe Black said:


> I'm sorry but I'm pretty sure you are wrong and OGG is correct. FINTRAC is only about the bank's requirement for reporting transactions above $10,000 to detect money laundering. The fact that you are "gifting" or "loaning" is irrelevant to this reporting.
> 
> As OGG said, your mortgage eligibility is based partly on your current debt load. That's why the bank needs to know if your son as taking on more debt from a loan from you.


It's about the real estate agent providing paperwork that meets fintrac requirements ... http://www.fintrac-canafe.gc.ca/reporting-declaration/Info/re-ed-eng.asp . Do all agents/lenders comply with/have a common interpretation ... e.g. $10K trigger? No idea, I've no interest or need to read through the requirements ... just an anecdotal alternate fact fwiw.


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## twa2w (Mar 5, 2016)

rikk2 said:


> It's about the real estate agent providing paperwork that meets fintrac requirements ... http://www.fintrac-canafe.gc.ca/reporting-declaration/Info/re-ed-eng.asp . Do all agents/lenders comply with/have a common interpretation ... e.g. $10K trigger? No idea, I've no interest or need to read through the requirements ... just an anecdotal alternate fact fwiw.


This is for reporting of suspicious transactions. The real estate agent rarely has any idea of the down pymt or financing other than the initial deposit and the financing condition. A parent providing funds to assist a purchase is common place and amounts are of no concern. Now if the deposit is 15,000 in small bills then then is question. Or if there is a record of buying and flipping condos with no apparent income and transactions do not appear to financed then that could be suspicious and require reporting.
Also reporting of politically exposed persons.


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