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One way to keep the financing low in Canada is to use a mortgage gift letter to buy a home. To make full use of the letter, you need to follow some basic rules to proceed with financing.
A mortgage gift letter represents a form that declares that your down payment has been given as a gift. By using this form, you are not under an obligation to return the money. In addition, the letter shows that you will not be under further financial stress, as the money has been gifted. By receiving the money, you can assure a lender that you are assuming less risk.
Therefore, using this strategy as a first-time buyer can bode well for you in securing a home mortgage. Even if you’ve bought a house before, a mortgage gift letter can help you prove that you’re serious about getting financing. After all, a lender wants to feel you owe your real estate solely to them.
So, what are the requirements for using this form?
The following tips will give you the requirements for placing a down payment using this method.
Because Canada does not have a gift tax, you can receive money from an immediate family member, via a mortgage gift letter, and not get taxed on the money.
When filling out the gift letter information, you need to include the following details:
You also need to include a statement that says the gift does not have to be paid back, clarifying that the money is actually a gift.
Below is an example of a mortgage gift letter:
Things can get tricky if you ask for a gift for a down payment and you are self-employed. In this case, you need to provide 5% of the home purchase price yourself with the gift for the down payment covering the rest of the cash, or 15%. If you are employed full-time, you can receive the full down payment as a gift.
While you can make it easier to finance a home by using a mortgage gift letter, you still have to show the lender you have a good to excellent credit score. Before you apply for a loan then, make sure you take care of any negative entries on your credit report. Present yourself to the lender in a way that makes him or her feel motivated about approving you for the loan.
Focus on all those things that will make approval a more positive experience. If you have an immediate family member willing to gift you the down payment, then, by all means, use that resource as well.
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