Acceptable Sources of Down Payment Funds

Down Payment Nathan Lawrence 17 Apr

The down payment plays a big role in a home purchase, but did you know that there are rules regarding where those funds can come from?  Here is a breakdown for you outlining the main types of acceptable sources of down payment funds along with information regarding what is required:

  • Your Personal Savings!
    • This being one of the most common sources of down payment funds. You’ve been diligent for the past few years, setting money aside every month.  Lenders (and your Mortgage Broker) LOVES you!  This is easily confirmed with a 90 day account history for the account or investment holding the funds.  Any large deposits showing (i.e. CRA income tax return) would need to be verified with supporting documents
  • RRSPs
    • Are you a first-time home buyer? Did you know that you can access up to 25k of RRSP investments for purchasing a home?  The funds being withdrawn from the RRSP need to have been in the investment for 90 days or more before they can be pulled out.  This is important for planning purposes, so discuss in more details with your Mortgage Broker.
  • Gift from an immediate Family member
    • Many house hunters are lucky to have parents, grandparents or siblings who are ready and willing to help make their dream of homeownership a reality. A gift from a family member is an accepted source for the down payment.  A gift letter will need to be signed by you and the family member gifting the funds, confirming that it is a gift and that there are not terms of repayment.  You need to provide 90 days of bank statements showing they have provided you the gift and some lenders may call the family member to verbally confirm it is a gift.  (Note that gifts are not always accepted on purchases of Non-owner occupied purchases; i.e. Rental properties)
  • Equity from another property or Home Equity Line of Credit
    • If you own your previous home and are planning to keep it as a rental property, you may have built up equity in that property over the years which could be used for the down payment on the new property. Discuss the options of refinancing that property with your Mortgage Broker and use those refinance proceeds for the down payment on the new property.
  • Sale of a current home
    • Selling your current home to purchase a new home? The equity that you have built up over the years will become available to you for the new purchase when it sells.  Using the proceeds from the sale is an easy option.  Your Mortgage Broker will need the firm offer for the sale of that home along with the current mortgage statement to confirm how much you will have access to.  Closing dates do not line up?  No worries, ask your Broker about bridge financing options.
  • Borrowed Down Payment
    • This one is a bit more difficult. There are minimum credit score requirements and fewer lenders these days that will accept a down payment from an unsecured borrowed sources.  If this is something that you are interested in, take the time to discuss the options with your mortgage broker to see if you will qualify for this type of down payment.  You will still be required to show that you have the 1.5% of the purchase price in savings to cover the closing costs)
  • Sale of an Asset
    • Have a vehicle, trailer, camper or other large value item that you are currently selling? This is a reasonable source for the down payment, but there is an important catch you need to be aware of.  Once you sell the item and deposit the funds into your bank account, your Mortgage Broker needs to be able to verify them.  So document the sale!! Paperwork, sales contract, receipt, something that confirms what was sold, for how much (needs to match the deposit into your account) and when it sold.  Without some form of confirmation, a lender may not accept it.

If you are unsure about your down payment or what is required, feel free to contact a Dominion Lending Centres Mortgage Specialist in your area.  We are here to answer all of your questions and guide you through the home buying process!

Best of luck with your search for your next home or investment property!!

Down Payment Verification – 5 Key Points

Down Payment Nathan Lawrence 17 Apr

By: Nathan Lawrence

One of the essential aspects of every mortgage application is the discussion pertaining to your down payment. Home purchases in Canada require a minimum down payment of your own funds to be put towards the deal. Your stake in the purchase.  It is important that during the discussions with your Mortgage Broker that all the cards are on the table pertaining to your down payment. Be upfront about your down payment and where it is coming from. Doing so can save you time and stress later on in the process.Most home buyers are aware that they will require a certain amount of money for a down payment.  What many do not realize is that lenders are required to verify the source of the funds to ensure that they are coming from an acceptable source.   Here are a few facts to keep in mind:

  1. Lenders require a 90-day bank account history for the bank account holding the down payment funds. The statements must include your name, account number and statement dates.
  1. A common hesitation that we often hear from clients is that their bank statements include a lot of personal details. As professionals, we completely understand our clients concerns pertaining to your personal information and we always ensure that information is protected.  Statements provided with blacked out names, account numbers or any other details are not acceptable.  Unaltered documents are a requirement of confirming the down payment funds.
  1. All large or unusual deposits need to be verified to ensure the source of those large deposits can be confirmed and can be used towards the down payment.
  • Received a gift from an immediate family member? Easy, Gift Letter signed.
  • Sold a vehicle? Easy, provide receipt of sale.
  • CRA Tax Return? Easy, Notice of Assessment confirming the return amount.
  • Transfer of funds from your TFSA? Easy provide the 90-day history for the TFSA showing the withdrawal.
  • Friend lent you money for the house purchase…. Deal Breaker.
  • A large deposit into your account that you cannot provide confirmation for…. Deal Breaker!
  1. You were told that your minimum down payment was 5%, great! However, did you know that you are also required to show that you have an additional 1.5% of the purchase price saved to cover closing costs like legal fees?
  1. Ensure that the funds for the down payment and closing costs stay in your bank account once you’ve provided confirmation. Those funds should only leave your account when they are provided to your lawyer to complete the purchase.  Lenders have the right to request updated statements closer to closing to ensure that the down payment is still there.  If money is moved around, spent or if there are more large deposits into your account, those will all have to be confirmed.

The last thing that anyone wants when purchasing a property is added stress or for something to go wrong late in the process.  Be open with you Mortgage Broker, we are here to help and to guide you through the process.  Not sure about something pertaining to your down payment funds?  Ask us.  We are here to work you through the buying process by making sure you know exactly what you need to do.Thinking about buying a home, rental or vacation property?  Talk to a dedicated Dominion Lending Centres Mortgage Specialist in your area to find out about what your down payment requirements will be.  For more information about acceptable down payment sources, check out our blog post on exactly that!!  Click Here!