Home purchases in Canada require a minimum down payment of your own funds to be put towards the purchase. It is important that during the discussions with your Mortgage Agent that you are open and honest pertaining to your down payment. Be upfront about your down payment and where it is coming from. This will help you avoid any unwanted headaches later on down the line of your mortgage approval process.
The minimum down payment that you will need for your purchase can start as low as 5%. What many do not realize, and is extremely important, is that lenders are required to verify the source of the funds to ensure that they are coming from what they deem to be a legitimate source. Take a look at the steps below to see what you can do to make the verification process as smooth as possible:
Lenders require a 90-day bank account history for the account holding the down payment funds. The statements must include your name, account number and statement dates.
A common reluctance 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.
Deposits that are out of the ordinary need to be verified to determine where they are coming from. Here is a list of common ways to show that your down payment is from a legitimate source:
– Received a gift from an immediate family member? A signed Gift Letter for the amount gifted matched with the deposit in your account will do.
– Sold a vehicle or collector item? Easy, provide receipt of sale.
– CRA Tax Return? Easy, Notice of Assessment confirming the return amount.
– Transfer of funds from your TFSA or RRSP? Provide the 90-day history for the TFSA or RRSP account showing the withdrawal.
– Suppose a friend lent you money for your purchase. This unfortunately will put a screeching halt to the deal.
– A large deposit into your account that you cannot provide confirmation for? This will be a deal breaker.
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?
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.