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 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. 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. These statements can be savings, chequing, RRSP, TFSA etc. but moving money around before these accounts are confirmed will only require more documentation. Do not move any funds until after your down payment has been verified by the lender.
2. 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.
3. 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!
4. 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?
5. 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.
