One of the biggest challenges facing buyers looking to buy a home or investment property, is saving for the down-payment.
Your down payment could come from savings, a gift from a family member, your RRSP if you’re a first time home buyer, or from the proceeds of selling your current home. Regardless of where your down-payment comes from, a major condition of each mortgage approval is to verify where your down-payment is coming from. This is to abide by fraud guidelines, as well as to ensure that you are not borrowing your down-payment which would affect your debt to service ratios.
What can be used to verify down payment when buying a home in Ontario?
How do banks verify down payment?
1. Your own savings/investments: The lenders will want to see a minimum of 90 days of history from the account the down-payment is from, whether from your TFSA, checking, savings, or RRSPs. Please note, your statement must show your name, bank name and have a minimum of 90 day history of the funds. Any large deposits, i.e. transfers from another account must show the funds coming out of that account to the final account. In this case, both accounts would need to show 90 day history. The idea is that you must have a paper trail of where the money came from in order to verify that it was from your own resources. This aligns with the Government of Canada regulations surrounding money-laundering and fraud.
2. Gifted down payment: For gifted down-payment, you will need a signed gift letter, which is often provided by the lender, and confirmation that the funds have been deposited into your account. Note that the gift must come from an immediate family member.
3. Proceeds of selling your existing home: If your down payment is coming from the proceeds of selling your current home then you will need to show the lender a fully executed purchase and sale agreement between you and the buyer of your home.
Aside from the down-payment, it is important to note that lenders will also want to see that you have 1.5% of the purchase price in savings to cover your closing costs.