Quick Answer: gift of equity in Ontario
Yes, Canadian lenders can approve a mortgage when parents sell their Ontario home to an adult child below market value, provided the transaction is documented as a non-arm's length purchase with a formal appraisal, a signed gift-of-equity letter, and an Agreement of Purchase and Sale showing the discounted price. The lender funds against the appraised value (not the discounted price), and the equity difference may serve as all or part of the buyer's down payment, which can push the loan-to-value below the insured-mortgage threshold. Ontario Land Transfer Tax is calculated on fair market value, not the family-discounted sale price, and Toronto buyers also pay Municipal LTT. Whether a Big-6 bank, a monoline, an insurer-backed deal or an alternative lender is the right fit depends mostly on the appraised value, the buyer's income documentation and credit, and each lender's appetite for non-arm's length deals.
When parents want to sell you the family home for less than it's worth
Picture a kitchen in Scarborough on a Sunday afternoon. Your parents, who have lived in the same bungalow for twenty-six years, have decided they want to downsize. They also want you to have the house. A realtor friend told them the home would list around $950,000, but they only need $750,000 to buy their next place. They push a mug of chai across the table and say, "Why don't you just buy it from us for that?"
If you walked away from that conversation unsure whether a bank would even look at you, you are in the right place. This article explains what a gift of equity actually is, how Ontario lenders treat a parent-to-child sale, what Land Transfer Tax you can expect, and the handful of decisions on your file that determine whether a Big-6 bank, a monoline or an alternative lender is the right fit. We also link out to our first-time home buyer page if this is your first purchase.
Quick Start: pick your path
Family sales do not all look the same. Find the box closest to your situation and head straight to that section.
How a gift of equity is different from a gifted down payment
With a cash gift, your parents send money to your lawyer's trust account and sign a standard gift letter confirming the funds are non-repayable. With a gift of equity, no cash changes hands for the down payment — the difference between the appraised value and the sale price is the down payment, and your parents sign a gift-of-equity letter instead. If a cash gift is what you actually meant, our gifted down payment guide walks through that version step by step.
How Ontario lenders price the deal: appraisal vs sale price
Here is what that looks like on the Scarborough bungalow. An independent appraiser confirms the home's fair market value at $950,000. Your parents agree to sell it to you for $750,000. The $200,000 difference is the gift of equity, and it acts as your down payment. On an insured mortgage you may only need that equity gift to reach the minimum down payment; on a conventional mortgage you may hold roughly 21% equity on day one, which puts your loan-to-value around 79% and can keep you out of default-insurance territory altogether.
Not every lender treats the file this way. Some revert to the sale price and require you to top up the down payment with cash. The OSFI B-20 qualifying rate (the mortgage stress test) still applies to the new mortgage either way, so the gifted equity solves your down payment problem but not your income-qualification problem. That is one of the file-specific handoffs we come back to.
Comparison: bank vs monoline vs alternative vs private lender
Not every Canadian lender welcomes non-arm's length family purchases. The table below shows how the four main lender categories typically approach a gift-of-equity file. Rate tiers are qualitative — a Pegasus broker confirms current numbers for your file.
| Lender type | Non-arm's length appetite | Typical LTV cap | Documentation | Rate tier |
|---|---|---|---|---|
| Big-6 bank | Yes | Up to 95% (insured) | Standard | Lowest tier |
| Monoline lender | Yes | Up to 95% (insured) | Standard | Low tier |
| Alternative (B) lender | Case-by-case | Up to 80% | Heavier | Mid tier |
| Private lender | Rare | Up to 75% | Heaviest | Highest tier |
A Big-6 bank or a monoline is usually the right home for a salaried, well-documented buyer who can clear the stress test. An alternative or "B" lender steps in when income is self-employed or recently restructured, credit is bruised, or ratios are tight — approval is possible but the rate tier is higher and a short term is normal. A private lender is a last resort for a specific bridging need, not a long-term home. For the full picture on that end of the market, our private mortgage lending in Canada guide covers it in depth. On most residential prime files our service is typically free to you because the lender pays us; on some alternative or private files a broker fee may apply and is always disclosed in writing before the file proceeds.
Step-by-step: how a gift of equity purchase closes in Ontario
A family sale is not slower than a regular purchase when the steps are sequenced in the right order.
- 1Family alignmentParents and buyer agree on the appraised-value approach and the sale price. Loop in an accountant if your parents' principal-residence or capital-gains position may be affected.
- 2Broker call and lender shortlistThe broker reviews the structure and the buyer's income, credit and ratios, and names the two or three lenders most likely to approve the file — before any hard credit check.
- 3AppraisalThe chosen lender orders an independent appraisal from an appraiser on its panel. The appraised value is the figure the mortgage is built on.
- 4Agreement of Purchase and SaleDrafted at the discounted price, with the gift-of-equity structure referenced. Your real-estate lawyer and your parents' lawyer coordinate.
- 5Gift-of-equity letterParents sign a letter confirming the equity is a non-repayable gift. Lenders have their own template; the broker provides it.
- 6Lawyer, LTT and registrationYour lawyer calculates LTT on fair market value, applies for any first-time-buyer rebate you qualify for, registers the transfer, and closes.
You can begin the application side on our online mortgage application once the family conversation is settled.
Where this depends on your file
A gift-of-equity purchase is a structure, not a template. Four file-specific factors decide which lender is realistic and what the closing day actually looks like.
If your own bank has already said a family sale is "complicated" or declined it outright, that is usually a lender-fit problem, not a dead end. A 15-minute call with a Toronto broker can show you which of our 50+ lenders would look at a non-arm's length file like yours differently — before anyone pulls your credit.
Book a 15-minute callOntario Land Transfer Tax on a family sale: what actually gets taxed
Using the Scarborough example at a $950,000 appraised value: your LTT is calculated on $950,000, not $750,000. If the property were inside the City of Toronto instead, you would pay provincial LTT and Toronto MLTT, roughly doubling the line item. Our Ontario Land Transfer Tax calculator gives you the exact figure for your postal code. Because a gift of equity can also affect your parents' capital-gains and principal-residence position, families often loop in a tax accountant before signing — our sister firm ClearWealth Accounting Advisors handles that review for Pegasus clients.
Common mistakes families make
- Signing the Agreement of Purchase and Sale before talking to a broker. The lender shortlist should be set first — a poorly drafted APS can disqualify the file from some lenders entirely.
- Assuming LTT is calculated on the family price. It is not, on non-arm's length transfers in Ontario — plan for the fair-market figure.
- Letting parents' existing mortgage stay registered without a plan to discharge or assume it. Two mortgages on title is a common cause of closing-day delay.
- Treating the gift-of-equity letter as a formality. Lenders have specific template language; a lawyer-drafted letter without it can be rejected and the file re-papered.
- Forgetting the accountant. Parents may trigger a capital-gains event if the home was not always their principal residence, or if the structure looks like a partial transfer at a loss.
- Applying at three banks in a row. Each hard pull nicks the credit score, and declines on a non-arm's length file follow the borrower from lender to lender.
- Assuming the first-time buyer rebate is lost. It typically is not, if the buyer otherwise qualifies as a first-time buyer under Ontario's rules.
Frequently asked questions
Can my parents sell me their Scarborough house for a dollar?
If my parents sell me their home below market value in Ontario, do I still have to pay land transfer tax on the full value?
Does CMHC insure a mortgage when I am buying from my parents?
Can I use the gifted equity as my only down payment, or do I still need cash?
My parents still have a mortgage on the Mississauga house — do they have to pay it off before they sell to me?
If my own bank already said no to a family sale, is the deal dead?
Do I lose the first-time home buyer rebate if I buy from my parents?
Does a gift of equity trigger capital gains tax for my parents in Canada?
Thinking of buying your parents' home? Talk to a Toronto broker this week.
A gift-of-equity purchase is not a weird or rare deal — it is a specific structure that only some lenders handle well, and the right lender is almost always chosen before the Agreement of Purchase and Sale is signed. On a short call we will review the appraisal expectation, the documents your parents' lawyer and ours will need, and the two or three lenders most likely to approve your file.
Book a 15-minute callOr call 416-281-9628
About the author
Razi Khan
Founder, CEO & Licensed Mortgage Broker · Pegasus Mortgage Lending · Toronto, Ontario · FSRA Lic # 11479
Razi Khan is the Founder, CEO, and a licensed Mortgage Broker at Pegasus Mortgage Lending Center Inc., based in Toronto. With over 20 years of experience in the Canadian mortgage industry, Razi has personally guided more than 3,000 clients through some of the most complex and high-stakes financial decisions of their lives — from first-time purchases in the GTA to refinancing strategies, alternative lending solutions, and cross-border mortgages for Canadians buying in the United States.
Razi founded Pegasus in October 2008, launching the brokerage at the height of a global financial crisis. He works across the full spectrum of borrower profiles, with particular expertise in complex files including self-employed borrowers, credit-challenged clients, and investors building multi-property portfolios.
Learn more about Razi Khan →Sources & References
- Ontario Ministry of Finance — Land Transfer Tax: ontario.ca/document/land-transfer-tax
- City of Toronto — Municipal Land Transfer Tax: toronto.ca Municipal LTT
- CMHC — Mortgage loan insurance programs: cmhc-schl.gc.ca
- OSFI Guideline B-20: osfi-bsif.gc.ca Guideline B-20
- CRA — Principal residence exemption: canada.ca principal residence
- FSRA — Mortgage brokerage regulation: fsrao.ca mortgage brokering