5 Smart Ways to Borrow Your Down Payment in Canada (And What to Avoid)
Yes — it’s legal to borrow your down payment for a mortgage in Canada. But not every method is created equal.
At Spire Mortgage, led by Alberta’s best mortgage broker Renee Huse, we help clients across Calgary, Edmonton, Red Deer, and beyond use smart, strategic borrowing to unlock homeownership — even when their savings are tight.
In this guide, we break down 5 ways you can borrow your down payment, who qualifies, and which options could hurt your approval (or your wallet).
In This Guide:
- What Lenders Look For With Borrowed Down Payments
- 5 Legal Ways to Borrow Your Down Payment
- What to Avoid
- Who Qualifies
- Comparison Table
- Glossary
- FAQ
What Lenders Look For With Borrowed Down Payments
Lenders and mortgage insurers care about three key things:
- Can you afford the new monthly payment on the loan or LOC?
- Does your credit history show that you pay debts back reliably?
- Is the source of funds legal, documented, and acceptable to the lender/insurer?
5 Legal Ways to Borrow Your Down Payment (Ranked Best to Risky)
1. RRSP or FHSA Loan (Best Option)
If you have contribution room and good credit, a short-term RRSP or FHSA loan is the smartest way to “create” a down payment. Here’s how:
- Borrow funds, contribute to RRSP or FHSA
- Wait 90+ days
- Withdraw using the Home Buyers' Plan (HBP) or FHSA rules
- No tax penalty, no repayment of the original loan to qualify
👉 Learn more about the FHSA strategy here
✅ Best for: First-time buyers, high income earners, strong credit
⚠️ Watch out for: Timing and contribution limits
💡 Strategy tip: Combine with a rate hold to shop while your funds mature
2. Unsecured Line of Credit (LOC)
A revolving line of credit is a flexible and widely accepted way to fund your 5% down, especially for clients with strong income and credit.
- No collateral required
- Can be interest-only
- Easy to document
✅ Best for: Salaried buyers with high credit scores
⚠️ Watch out for: LOC balance adds to your debt service ratios
💡 Strategy tip: Keep it interest-only until you’re stable post-purchase
3. Personal Loan
A personal loan with a fixed repayment schedule can also fund your down payment. Lenders often prefer it over credit cards because of the set timeline and lower rates.
✅ Best for: Buyers with decent credit and income stability
⚠️ Watch out for: Larger monthly payments reduce your affordability
💡 Strategy tip: Choose a 3–5 year term for a balanced repayment plan
4. Vehicle-Backed Loan
If you own your car outright, you may be able to take out a secured loan against it to generate your down payment.
✅ Best for: Buyers with assets but low cash
⚠️ Watch out for: Risk of losing the vehicle if payments are missed
💡 Strategy tip: Use only if other options aren’t accessible
5. Gifted Funds (Not Borrowed, But Often Misused)
Gifts from family are completely allowed — and don’t count as debt. However, if you’re secretly “repaying” the gift later, it’s not a gift. That’s mortgage fraud.
✅ Best for: Buyers with generous family support
⚠️ Watch out for: Lenders require a signed gift letter
💡 Strategy tip: Be honest. Gifts can be powerful, but must be real.
What to Avoid
- Credit cards: High interest, red flag for underwriters
- Cash advances: Hard to track, viewed as risky
- Private loans from friends: Unless properly documented
Who Qualifies for a Borrowed Down Payment Mortgage?
This strategy works for:
- Buyers with strong credit (ideally 680+)
- Stable employment or self-employed income that’s declared on taxes
- Debt levels that leave room to absorb new payments
This strategy does not work for:
- Newcomers without a credit history
- Investors buying rental properties
- Low or unstable income
- Self-employed with undeclared income
Comparison Table: Borrowed Down Payment Options in Canada (2025)
| Method | Accepted by Lenders | Affects Affordability | Interest Cost | Risk Level | Best For |
|---|---|---|---|---|---|
| RRSP/FHSA Loan | ✅ Yes | ✅ Moderate | 💰 Low | 🟢 Low | First-time buyers, planners |
| Unsecured Line of Credit | ✅ Yes | ✅ Yes | 💰 Moderate | 🟡 Medium | Salaried borrowers |
| Personal Loan | ✅ Yes | ✅ High | 💰 Moderate | 🟠 Medium | Structured repayment buyers |
| Vehicle Loan | ✅ Sometimes | ✅ Yes | 💰 Moderate | 🔴 High | Buyers with no other options |
| Gifted Funds | ✅ Yes | ❌ No | 💰 None | 🟢 Low | Buyers with family support |
| Credit Cards / Cash | ❌ No | ✅ High | 💰 Very High | 🔴 High | ❌ Not recommended |
Glossary: Key Terms
- Borrowed Down Payment: When you use a legal loan or credit line to fund your mortgage down payment.
- Home Buyers' Plan (HBP): A CRA program that lets you withdraw RRSPs tax-free to buy a home.
- FHSA: The First Home Savings Account — combines tax deductions and tax-free withdrawals. Learn more here.
- Debt Service Ratio (TDS/GDS): The percentage of your income used to cover housing and debts.
- Unsecured Line of Credit: A flexible, revolving loan that doesn’t require collateral.
- Pre-Approval: A conditional assessment of how much mortgage you can afford.
FAQ
Can I borrow my entire down payment in Canada?
Yes — as long as you qualify for an insured mortgage and the loan is structured properly.
Does using a borrowed down payment hurt my mortgage approval?
Not necessarily. We just need to factor the repayment into your debt service ratios.
Can I use an RRSP loan for a mortgage down payment?
Yes — when used correctly, RRSP loans are one of the most lender-friendly strategies.
What’s the best way to borrow a down payment?
RRSP or FHSA loans, if you qualify. Otherwise, unsecured LOCs are the next best option.
Can I use a credit card for my down payment?
No. High interest and unsecured usage are major red flags. It will likely disqualify you.
Final Thoughts: Borrow Smart, Buy Smarter
Borrowing your down payment is not a loophole — it’s a real, accepted path to homeownership in Canada. But only when done right.
At Spire Mortgage, we specialize in building custom financing plans that work with — not against — lender rules.
Give us a call or fill out an application here and our team will get in touch to create your tailored down payment plan.
Written by Renee Huse, licensed mortgage broker and founder of Spire Mortgage. Renee helps Albertans make confident real estate decisions with smart financing strategies tailored to their goals. Learn more about Renee here.
