Saving a down payment is the biggest hurdle for most Canadian home buyers. When savings fall short, borrowing for a down payment may seem like an obvious solution. But the rules around borrowed down payments can significantly affect — or even derail — your mortgage approval.
Here’s what you need to know.
Can you legally borrow for a down payment?
Yes, there is no law preventing you from borrowing for a down payment. However:
- You must disclose it — Failing to disclose borrowed funds is mortgage fraud
- The loan payments count as debt — They increase your TDS ratio and reduce your qualifying amount
- Lenders verify the source — They check your bank statements for the origin of your down payment funds
How borrowed down payments affect qualification
When you borrow for your down payment, the lender adds the loan payments to your debt obligations:
| Borrowed on a line of credit | Payment a lender may count (3% of balance) | Mortgage you no longer qualify for |
|---|---|---|
| $25,000 | $750 a month | about $107,000 |
| $50,000 | $1,500 a month | about $214,000 |
| $75,000 | $2,250 a month | about $322,000 |
Example: for an insured mortgage, CMHC has lenders count at least 3% of an unsecured line of credit’s balance as a monthly payment (CMHC), and many lenders use the same figure. If your total debt service ratio is the limit, each dollar of that payment is a dollar less mortgage payment you qualify for; the last column is the mortgage those payments would carry at a 6.99% qualifying rate over 25 years (semi-annual compounding). Your own figure depends on your qualifying rate and whether the TDS ratio is what limits you.
The catch: if you are already near the debt ratio limit, the payments on a borrowed down payment can cut the mortgage you qualify for by far more than the amount you borrowed.
Down payment sources ranked
Best sources (no impact on debt ratios)
| Source | Amount Available | Repayment Required? | Counts as Debt? |
|---|---|---|---|
| Personal savings | Unlimited | No | No |
| FHSA | Contributions up to $40,000, plus growth | No | No |
| RRSP Home Buyers’ Plan | Up to $60,000 per person | Yes (over 15 years), but not a loan | No |
| Gift from a relative | Unlimited | No (with gift letter) | No |
| Sale of existing property | Varies | No | No |
| Inheritance | Varies | No | No |
Acceptable but risky sources (affects debt ratios)
| Source | Impact on Qualification |
|---|---|
| Line of credit | 3% of balance added to monthly debt |
| Personal loan | Full monthly payment added to debt |
| Credit card cash advance | 3% of balance + high interest rate |
| Loan from employer | Monthly payment added to debt |
Not acceptable
| Source | Why |
|---|---|
| Undisclosed loans | Mortgage fraud |
| Cash with no paper trail | Cannot verify source |
| Proceeds of crime | Obvious |
The FHSA + HBP strategy
Registered accounts let you use your own savings without taking on a loan payment:
| Strategy | Maximum Down Payment | Tax Benefit | Counts as Debt? |
|---|---|---|---|
| FHSA only | $40,000 of contributions, plus growth | Tax-deductible contributions | No |
| HBP only | $60,000 per person ($120,000 couple) | Withdrawal isn’t taxed (repay over 15 years) | No |
| FHSA + HBP combined | $100,000 per person ($200,000 couple), plus FHSA growth | Both tax-advantaged | No |
A couple could use up to $200,000, plus FHSA growth, from these accounts without a loan payment counting against their debt ratios.
→ FHSA Calculator → Home Buyers’ Plan Calculator
Borrowed down payments and insured mortgages
For an insured mortgage, CMHC accepts a borrowed down payment only in limited cases: its Purchase program allows non-traditional sources such as unsecured personal loans or lines of credit on 1- or 2-unit homes with a loan-to-value of 90.01% to 95%, for borrowers with a strong credit history (CMHC). Other insurers and lenders set their own rules.
Gift down payments
Gifted funds are one of the most common down payment sources and have no negative impact on your mortgage qualification.
Requirements for a gift letter
The donor must provide a signed letter stating:
| Element | Details |
|---|---|
| Donor’s name and relationship | Must be a relative for CMHC; many lenders limit this to immediate family (parent, sibling, grandparent) |
| Amount of gift | Specific dollar amount |
| No repayment expected | Explicitly stated |
| Signed and dated | By the donor |
| Donor’s contact information | Lender may verify |
Some lenders also require:
- Proof the donor has the funds (bank statement)
- Confirmation the funds have been transferred to the buyer’s account
Who can gift?
| Relationship | Accepted by Most Lenders? |
|---|---|
| Parents | Yes |
| Grandparents | Yes |
| Siblings | Yes |
| Aunt/uncle | Some lenders |
| Friends | Rarely accepted |
| Employer | May be treated as a loan |
When borrowing makes sense
Despite the drawbacks, there are limited situations where borrowing can work:
1. Bridging a small gap to 20%
If you are just short of 20% down, borrowing the difference can avoid the mortgage default insurance premium, provided the lender accepts borrowed funds for an uninsured mortgage and the loan payment still fits your debt ratios.
Example:
| $500,000 home | Cost |
|---|---|
| 19% down ($95,000): insured mortgage of $405,000, premium 2.80% | $11,340 premium added to the mortgage |
| Borrow $5,000 more to put 20% down: no premium | Interest on the $5,000 loan (about $350 a year at 7%) |
The premium avoided is far larger than a year’s interest on the small loan, but only if a lender approves an uninsured mortgage with part of the down payment borrowed.
2. Using a secured line of credit at low rates
If you have a HELOC at a low rate and the payments don’t push your TDS over 44%, borrowing from your existing home equity can work.
3. Short-term bridge financing
If you’re selling a property and closing dates don’t align, a bridge loan covers the gap temporarily. Lenders treat this differently from a permanent loan.
What NOT to do
| Bad Strategy | Why It’s Dangerous |
|---|---|
| Borrow without disclosing | Mortgage fraud — lenders verify bank deposits |
| Use credit card cash advances | Cash advances usually charge a higher rate than purchases, with interest from day one |
| Borrow from private lender | High interest, potential legal complications |
| Accept a “loan disguised as a gift” | If the lender discovers it, your application is denied |
| Deplete your emergency fund | Homeownership comes with unexpected costs |
Alternative strategies
If you can’t reach your down payment goal:
| Strategy | Details |
|---|---|
| Wait and save | Even 6–12 months of focused saving can close the gap |
| Buy a less expensive property | Reduces the required down payment |
| Buy with a partner | Combine two people’s savings and income |
| Look at shared equity programs | Some programs provide part of the down payment in exchange for shared appreciation |
| Consider a different market | $50,000 down goes much further in Calgary than Toronto |
Related resources
- Stress test
- How to Increase Your Mortgage Amount: Strategies to qualify for more
- FHSA Calculator: Tax-free home savings
- First-Time Home Buyer Guide: Full buying overview
- Mortgage Stress Test Calculator: Test your qualification
Sources
The figures and rules on this page come from these sources, last checked against them between August 29, 2026 and September 25, 2026. How we check facts.
- Canada Revenue Agency: FHSA: Participating in your FHSAs
- Canada Revenue Agency: RRSP: The Home Buyers' Plan
- Canada Revenue Agency: RRSP: How to participate in the Home Buyers' Plan
- CMHC: Calculating GDS / TDS
- Financial Consumer Agency of Canada: How much you need for a down payment