According to the OSFI guidelines, all federally regulated financial institutions must verify the source of the down payment before putting the seal of approval on a mortgage. They must check this to ensure the funds come from a legitimate source, not something illegal. But even if your mortgage lender isn’t federally regulated, you must be ready to prove your down payment source. That’s because non-federally regulated financial institutions also follow these verification processes to prevent fraud and comply with anti-money laundering regulations.

That raises the question: What down payment sources are typically approved by lenders? Let’s explore the acceptable down payment sources in more detail below.

Down Payment Sources: Mortgage Lenders Generally Accept

1. Funds from a Checking or Savings Account

Quick fact - lenders prefer this down payment source the most. Lenders like to see your down payment come from your personal savings because it shows financial responsibility and stability. Also, savings don’t come with repayment obligations, making you a lower-risk borrower.

Key Reminder -

Lenders prefer that your down payment funds be in your savings or checking account for at least 60 to 90 days before closing - the seasoning period. So, if you plan to use savings for your down payment, ensure the funds have been sitting in your account for a few months. Also, remember that lenders will review your bank statements to verify where the funds came from.

2. Funds from Down Payment Assistance Programs

Not everyone has thousands of dollars saved up for a down payment, and that’s okay. Various government down payment assistance programs can help you secure the funds you need to make homeownership a reality. These programs can provide direct financial assistance or offer tax benefits that lower the home-buying costs.

You will still have alternatives even if you do not qualify for these government programs. For example, the Tonsto down payment assistance program provides financial assistance of up to 2% of the home’s purchase price to eligible buyers. This cashback is a portion of the commission the real estate platform earns by representing you in the home-buying process.

Key Reminder -

Not all mortgage lenders accept every down payment assistance program. Some lenders might only allow funds from government programs, while some may not accept down payment assistance programs with big repayment obligations. So, before applying for any down payment assistance programs, check with your lender.

3. Gifted Money from Family

Gifted money is when a family member - usually parents or close relatives - gives you money to help you become a homeowner. According to a CIBC report, more and more Canadians are using gifted funds to buy their first home. 31% of first-time home buyers received financial assistance from their family in 2024, compared to 20% in 2015. The average gift amount has also increased significantly. In 2024, the average gift amount reached $115,000. That’s a 73% increase compared to 2019. This trend shows that gifted funds are helping buyers in a major way to afford homes in today’s expensive market.

Key Reminder -

Mortgage lenders usually allow homebuyers to use gifted money for the down payment. However, they require you to prove that the gifted money is not a hidden loan. You must prove this with a gift letter - a document that confirms the money is a gift, not a loan. Without a gift letter, your lender might not accept the gifted funds as part of your down payment.

4. Inheritance Money

An inheritance is the money, property, or other assets you receive when a loved one departs. If there are no conditions in the will restricting how you use the inheritance, you can put it towards home-buying. One of the biggest perks of receiving an inheritance in Canada is that there is no inheritance tax. However, this does not mean your inheritance is immune to taxes - the estate is responsible for any outstanding taxes.

Usually, when someone passes away, the Canada Revenue Agency (CRA) considers all their assets part of their estate. So, before you (the beneficiary) receive the inheritance, the estate has to settle any outstanding income tax, capital gains taxes, or other liabilities. Once the estate pays those taxes, the remaining inheritance is yours to use freely.

Key Reminder -

Most mortgage lenders in Canada accept inheritance money as a valid down payment source. However, there are some rules and requirements you must meet -

• Proof of Funds: Lenders need to see documentation confirming the inheritance. This documentation should include a copy of the will, a letter from the asset's executor, and bank statements showing the funds transfer.
• Timing of the Funds: You must receive the full inheritance amount before closing.

5. Proceeds from the Sale of Stocks, Bonds, and Other Assets

You can’t hand over stocks, bonds, and other assets directly to a mortgage lender. But you can sell them and use the cash proceeds for the down payment. Here are the types of assets you can use for the down payment -

• Publicly traded stocks
• Mutual funds
• Exchange-traded funds
• Cryptocurrency
• Gold

Key Reminder -

Remember that you might have to pay capital gains tax when you sell investments like stocks, bonds, or other assets. Capital gains tax is a tax on the profit you earn when you sell an investment for more than its original purchase price. You must pay taxes on 50% of your capital gain in Canada. So, when you sell an investment, 50% of the profit from the sale is included in your taxable income.

Suppose you bought stocks for $20,000 and later sold them for $30,000. Your total capital gain is $10,000. Since only 50% ($5,000 is taxable), you will pay taxes on $5,000 at your personal income tax rate.

Got Questions? Ask Your Lender Right Away

Buying a home is a big financial step, and it’s necessary to have clarity on every part of the process. So, never assume anything when it comes to your down payment or mortgage. If you have any doubts - whether the lender accepts a specific down payment assistance program or a particular funding source - ask the lender as early as possible. The last thing you want is to find out something isn’t allowed, which could delay or even derail your home purchase.