Demonstrating the Source of Your Down Payment

The time leading up to the closing day on your new home purchase can be very stressful and there are a number of things that must come together before you are handed your new keys. One of these requirements involves your down payment and the verification of the source of your down payment. This is to ensure that borrowed money is not being used for the down payment and this information is required by both insurance providers such as the Canada Housing and Mortgage Corporation (CMHC) and your lender.

Down payment sources fall into one of the following three categories:

  1. Down Payment from the Sale of Your Current Home

When selling your current home and buying a new property, proceeds from the sale are typically put towards the new purchase as the down payment. In order to verify this form of down payment, you must supply a copy of the purchase agreement for your current home along with a statement showing the balance of any mortgages currently tied to that property.

The difference between the sale price of the current home, and the outstanding mortgage still remaining on the property, represents the amount that can be applied to the new home purchase in the form of a down payment.

  1. Self-Funded Down Payment

Not all buyers have the profit from the sale of an existing property to use towards a down payment. First-time buyers, for instance, often use their savings to provide the down payment.

To demonstrate that your savings do not include recently borrowed funds, you must be able to verify that you have held the funds in your name for a minimum of 90 days. If you’ve recently sold investments to put towards your down payment, you will have to provide evidence of those transactions as well.

  1. Down Payment in the Form of a Gift

Gifted funds can make up all or part of your down payment. However, the following conditions must be met in order for gifted funds to be acceptable:

  • The gift provider must be an immediate family member of the home buyer.
  • The gift provider must declare that the money is indeed a gift and that there are no requirements for the home buyer to repay the gift.

Home Trust requires the completion of the Gifted Down Payment form with any mortgage application where any part of the down payment is to come from a gift to the borrower. Because these details must be verified, and because the funds must be in the borrower’s possession before loan insurance can be arranged and the mortgage funds released, you should have everything in place well before the expected closing date.

 

Pino Decina
EVP Residential Mortgage Lending
Home Trust Company

This post is intended for informational purposes only and is not to be considered financial advice.

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