Buying within the family: when the discount becomes your down payment

Buying a home from family sounds easy on paper. Parents want to help their kids get ahead. Kids want to buy the family home or finally get into the market. Everyone wants it to feel fair. 

Then real life shows up. Mortgage rules. Tax stuff. Family dynamics. Suddenly something that felt simple at the kitchen table starts feeling complicated fast. 

There’s a tool that can make family home purchases work without anyone writing a massive cheque. It’s called gifted equity. In simple terms, gifted equity lets the discount you get on a family sale count as your down payment. 

Let me walk you through what that means in real life. 

What gifted equity is, in real life 

Normally, when you buy a house in Canada, you need a down payment in cash. That’s money sitting in your account that you can prove you have. 

With a family sale, there’s another way. Instead of gifting cash, the family member selling the home can gift part of the equity they already have in the property. They sell the home to you for less than it’s worth on purpose, and the difference between market value and the agreed sale price is treated as a gift. 

You’ll hear two common ways families help with down payments. 

1. Gifted cash, where money is transferred to you to use as the down payment. 

2. Gifted equity, where the home is sold below fair market value and that built in discount becomes the gift. 

Most people know gifted cash exists. Fewer realize gifted equity is an option for buying a house from family. 

A simple example 

Let’s put numbers to it:

• Say the home is worth 500,000. 

• Your parents agree to sell it to you for 400,000. 

• That 100,000 difference is the gifted equity. 

• From the lender’s perspective, that 100,000 can be treated like your down payment. You don’t have to show you saved that amount in cash. The gift is already inside the property. 

You’re still buying the house. The seller is just choosing not to take the full amount they could get on the open market. 

Yes, it’s still a real sale 

Gifted equity isn’t a loophole or a fake transaction. It’s a legitimate home purchase, just structured differently. 

You still need a proper purchase and sale agreement. Lawyers are involved. A lender has to approve the setup. In most cases, the lender will want an appraisal to confirm the property’s current market value. If the appraisal comes in different than expected, we may need to adjust the numbers or wording so everything matches lender guidelines. 

That’s why I usually recommend not locking anything in permanently until we have a good estimate of value and the lender or insurer confirms they’re comfortable. 

Sometimes a realtor isn’t involved in family home sales because the negotiation happens directly between family members and the lawyer prepares the agreement. If everyone feels better having a realtor involved, that’s an option too and it can have enormous value in some cases! 

The gift letter still matters 

Even when the down payment comes from equity instead of cash, the lender wants proof it’s truly a gift, not a hidden loan. 

That’s where the gift letter comes in. Each lender has their own version of this form. The person giving the gift and the person receiving it both sign. It clearly states the gifted amount, whether cash or equity, doesn’t need to be repaid. 

If parents expect to get the money back later, it isn’t a gift anymore. It becomes a loan, and lenders treat that very differently. This part is important. 

Who can use gifted equity 

Gifted equity is most common with parents selling to children, but it isn’t limited to that. 

It can also work when one sibling buys out another sibling’s share, when grandparents sell to grandchildren, or when adult children sell to their parents. 

The family member buys at a discount, and that discount becomes their down payment. It can be a practical solution when timing and goals line up on both sides. 

Lenders will want the deal to be between immediate family. That usually means parents, children, and siblings. Once we get into extended family like aunts, uncles, or cousins, it can get trickier. Not always impossible, but lender options may be more limited. 

This is one of those spots where the relationship between buyer and seller can make or break the approval. That’s why I always want to understand who is buying from whom and if it can work in that structure, before anyone commits to a price or signs paperwork. 

Why your broker, lawyer, and accountant all matter 

Gifted equity sits right at the intersection of mortgage rules, tax rules, and family dynamics. 

My job as a mortgage broker is to structure the financing in a way a lender and insurer will approve. I’ll guide you on documentation, the gift letter, and how to make the numbers work. 

But I’m not your lawyer or your tax advisor. 

Before a family sale moves ahead, especially at a discount, loop in an accountant to talk about tax implications and a lawyer to make sure the agreement, title, and estate pieces are handled properly. 

On the seller’s side, you’ll want to think about things like: 

• Is this their principal residence. 

• Will capital gains tax apply. 

• If one child is getting a deal, does the estate plan need updating to keep things fair for other siblings. 

• From a mortgage perspective, there are usually several ways to structure a family sale. From a tax and family perspective, professional advice matters before you pick a number and shake hands on it. 

Don’t pick a price and sign first 

I see this a lot. Families agree on a price at the kitchen table, assume the bank will be fine with it, then sign papers. Only after that does someone call a broker or accountant and we find out the plan doesn’t fit lender rules, tax rules, or both. 

A better order is simple. 

• First, talk to a broker. Make sure the buyer can qualify. Confirm the structure fits today’s lender and insurer guidelines. 

• Then talk to a lawyer and accountant. Check for tax surprises. Make sure the plan fits the family’s bigger picture. 

Doing it this way upfront saves stress, last minute changes, and awkward conversations later. 

How to start the conversation without making it weird 

Money and houses can feel touchy in families. The first conversation isn’t about deciding anything. It’s about exploring options. 

If you’re the kids starting the conversation, it can sound like this: 

"We’ve been thinking about buying, but it’s hard to compete in this market. Would you ever consider selling this house to us at some point. We’re not asking for a freebie. We’ve just learned there are ways to structure it that could help everyone. No decisions today. We’d just like to understand what it might look like." 

If you’re the parents bringing it up, it can be as simple as: 

"We’ve been thinking about downsizing in the next little while. Before we list the house, would either of you want to talk to a mortgage broker about what it might look like if you bought it instead. Nobody has to decide anything right now. We just want to see if it could work for everyone." 

Information first, decisions second. You’re not promising anything by having that first chat. You’re just opening the door to questions and advice before anyone signs. 

You don’t have to become the expert 

You don’t need to memorize all the rules around gifted equity, taxes, or lender guidelines. 

You just need to know this: 

1. Family home sales can be structured in a way that helps everyone. 

2. Gifted equity is one tool that can make that possible. 

3. The order you do things in matters. 

If you’re thinking about buying or selling a home within the family, or you’re just wondering if gifted equity could work for you, that’s exactly what I’m here for.  

You bring the unique family situations and the questions. I’ll help with the structure, the numbers, and what lenders are likely to say yes to. 

We can hop on a call and walk through your family setup, your goals, and what’s realistic for YOU.

The link to book can be found HERE.