Downpayment for a new home: Seems like a pretty easy thing to understand. NO?

If you wish to purchase a home you need a downpayment. YES.

In most cases the minimum downpayment is 5% of the purchase price.

Proof of DOWNPAYMENT is one of the trickiest things for most people (first time home buyers OR repeat buyers) to understand.

Years ago a home purchase consisted of a verbal agreement and a handshake.

Gone are the good ol’ days. 

Today: due to money laundering and fraud minimum banking standards and policy requires every consumer (regardless of their income level, credit score or net worth) to provide the lender confirmation of funds being used for downpayment in a very specific format.

Your lender will be verifying your down payment prior to full approval.  It’s required by all lenders to protect against fraud.

The lenders also are required to prove that you are not borrowing your down payment. Borrowing your downpayment can change your lending ratios and your ability to repay your mortgage.

There are no gray areas with proof of downpayment rules. There are no exceptions to the rules relating to proof of downpayment.

Every single consumer that wants to borrow money for a home (from any lender) needs to be able to viably prove downpayment.

EVEN IF: you are purchasing a $500,000 home and putting down $475,000 and only need a $25,000 mortgage – the rules still apply to you.

HOW CAN I MAKE THINGS EASIER FOR YOU?

Follow our guidance and our advice.  We are here as your Mortgage Expert to help you though what some of my clients have called a “mine field” of mortgage rules.

By following our advice the entire pre-approval to possession date process is quite simple, efficient and speedy.

Get PRE-approved.

  • This simple step will allow us to gather and review your important and unique details UP FRONT-BEFORE you go house hunting and have very limited time restrictions to meet for your final approval.

Let us ask the hard questions up front.

  • If you are applying for a mortgage be prepared for full disclosure relating to all of your finances. Lenders will not even consider reviewing an application if something is left out or not clearly outlined.
  • We ask ALL of the hard questions up front so we can package the information in a way we know the lenders will accept it or consider it.
  • If your downpayment source is questionable (cash from tips, cash from the sale of a vehicle, a gift from a family member, ETC)- run it past us so that we can provide tips on what the bank will need to see when you proceed with an offer on a home.  We are not the bank. We are here to provide you the information you need to make educated decisions on what the bank WILL need to see so you can properly prepare yourself.
  • WHY do we ask the hard questions up front? To avoid delays for you when you need the final mortgage approval. To avoid disappointment and lost opportunities on homes you may want to purchase because the appropriate information and paperwork is not organized for the lender to review.

Send us your paperwork immediately.

  • We prefer to review ALL of your paperwork up front BEFORE you start house hunting with your Realtor.
  • We will provide you a detailed list of every document we need to review. Send this to us immediately.
  • This allows us time to review and ensure that the paperwork we have on file is exactly in line with what the lender will need when we request your final approval.
  • If we are missing something we will ask for MORE.
  • The more we ask for- simply means we are better preparing your file to get a speedy approval at the very best rates with the very best lenders.
  • The less information we have upfront will mean more information you have to provide to us last minute. This always creates un-needed stress for you throughout the home-buying experience.

Remember we are working for YOU. 

  • Not only are we Provincially legislated to work in the “consumers best interest” by the “FCAA” (Financial and Consumer Affairs Authority) BUT we just generally want to make the entire home buying experience seamless, stress free and easy for you from PRE-APPROVAL to POSSESSION date.
  • We are not asking for paperwork that we will not need and we are not asking for anything to make things more difficult.
  • The more prepared YOU ARE – the faster the final approval process will happen for you.

Not every Mortgage is created equal.

  • Although you may be receiving advice and guidance from many sources (Online, Mom, Dad, Grandparents, friends, neighbors and colleagues) please know that every single person’s finances, employment situation, debt load, other financial obligations, credit score etc are vastly different and unique.
  • The differences in each mortgage request will mean different requirements for different people.
  • Mortgage rules have changed immensely and aggressively in the past 10 years and the approval process may be different for you than it was for your friend.

Saving for a down payment is often one of the biggest challenges.

The source of your down payment could come from your own 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.

EXAMPLES of DOCUMENTS YOU WILL NEED TO SHOW WHEN VERIFYING YOUR DOWN PAYMENT

1. Savings/Investments:  If you’ve saved enough money for your down payment your lender will want to see a CURRENT 3 month history (90 day transaction history) of any account you plan on using for your down-payment. (Savings/TFSA/RRSP/etc)

Your statement will need to clearly show your name and your account number.  Any large deposits will need to be verified. Example: You sold a dirt bike and deposited $6000 into your savings account.  A few days later you transferred it to your TFSA. In this examples you will have to provide a 90 days statement from your savings account and your TFSA.   Any transfers between accounts from one account to another will need to show a record of the money leaving one account and arriving in the other.  The lenders want to see a paper trail of where the money came from and how it got in your account.

A screen shot of a quarterly statement from last Summer just won’t do it.

2. Gifted Down Payment:  Mom and Dad (or ANY IMMEDIATE family member) can assist you with your downpayment. You will need a signed gift letter from your family member that states the down-payment is indeed a gift and no repayment is required on the funds.

The lender will also require that we show the funds have been deposited into your account no later than 15 days prior to closing.

3. Using your RRSP:  If you’re a First Time Home Buyer, you may qualify to use your Registered Retirement Savings Plan (RRSP) for your down payment.

Verifying your down payment from your RRSP is just like verifying from your savings/investment accounts.  You will need to show a 3 month history via your account statements with your name and account number on them.  Funds must have been in your account for 90 days.

4. Proceeds From Selling Your Existing Home:  If your down payment is coming from the proceeds of selling your current home you will need to show your lender a fully executed purchase and sale agreement between you and the buyer of your home.  If  you have an outstanding mortgage on the property, you will also have to provide an up-to-date mortgage statement.

5. Money From Outside Of Canada:  Using funds from outside of Canada is acceptable.  The country of origin will determine the type of documents required by the lender. In some cases – some lenders require the funds are in Canada for a minimum of 30-90 days.  In these situations it is good to review your options and time line restrictions before starting the house hunting process.

Verifying your down payment will always require you to show documentation of where the money originated from. All large deposits needs explanations and/or paper trails.

Want to make things easy?  Preparing to become a home owner?

Use ONE bank account to save your downpayment . Avoid multiple transfers among multiple accounts. (Remember we need a 90 day transaction statement for each account that your money has moved in and out of). If you have been gifted funds from Mom, Dad, Brother, Sister etc, advise them they may need to sign a Gift letter.  If you have sold ANYTHING get a bill of sale and deposit that amount of money directly into your bank account so that the bill of sale and the deposit match up exactly.  Been saving your TIPS? Or Birthday Money for years? GET THAT money deposited asap. It has to be in your account for 90 days before it can be used without a paper trial to authenticate the funds as per the rules above.

AGAIN- best tip of the day relating to downpayment??

CONTACT us the moment you start considering home ownership.

We can review your information now to prepare you for the future.

Thank you for taking the time to read and educate yourself on what steps you may need to take to consider home ownership.

I am here to work with you every step of the way!

Apply ONLINE or call me at 306.933.3386

Tammy Wandzura, Mortgage Broker AMP