How to Verify Your Down Payment When Buying a Home
KellyHudsonMortgages • Aug 31, 2016
Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, you need to document the heck out of everything. Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment , which changes your lending ratios and potential approval.
DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT
- Personal Savings/Investments:
Your lender will want to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax Free Savings Account (TFSA) or investment money. Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders don’t like to hear that you’ve just deposited $10,000 cash that has been sitting under your mattress.
Your bank statements will need to clearly show your name and your account number.
- Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account. This is mainly to battle money laundering and fraud.
- Gifted Down Payment:
In the expensive Metro Vancouver & Toronto real estate markets, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment as long as you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required.
- Be prepared to show the gifted funds have been deposited in your account 15 days prior to closing. The lender will want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. Bank documents will need to show the account number and names for the giver and receiver of the funds. Gifted down payments are only acceptable from immediate family members (parents, grandparents, siblings). Contact me for a sample gift letter.
- Using your RRSP:
If you’re a First Time Home Buyer, you may qualify to use up to $25,000 from your Registered Retirement Savings Plan (RRSP) for your down payment. To see if you qualify to use your RRSP’s as a down payment check out the federal Home Buyers’ Guide
(HBP). If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $25,000. You have to repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew.
If you do not repay the amount due for a year (i.e. $25,000/15 years = $1666.67 per year), it will be added to your income for that year.
- Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must have been in your account for 90 days.
- Proceeds from Selling Your Existing Home:
If your down payment is coming from the proceeds of selling your currently home, then you will need to show your lender an accepted offer of Purchase and Sale between you and the buyer of your current home.
- If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.
- Money from Outside Canada : Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date. Verifying your down payment from overseas also requires that you provide a 90 day history of your source account.
Most lenders will also want to see that you have 1.5%-3% of the purchase price available in your account to cover your closing costs (i.e. legal, home inspection, taxes, etc).
Buying a home for the first time can be stressful, therefore being prepared with the right documentation for the down payment and closing costs can make the process much easier.
Give me a call if you have any questions about substantiating your down payment or any other questions regarding mortgages.
Kelly Hudson Mortgage Expert
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com
Kelly Hudson
MORTGAGE ARCHITECTS
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