Why Your Down Payment Source Matters
Where your money comes from tells the lender a lot. Here is what they look for.
The quick version
Lenders must confirm where your down payment comes from. It is the law.
Savings usually need a 90-day history in your account.
Gifts from immediate family are fine, with a signed gift letter.
Borrowed down payments are only allowed in limited cases, and the payment counts in your debt ratios.
Every detail of the purchase must be disclosed to the lender.
Not sure your down payment is ready? Book a call and we will make sure your documents are in order before you shop.
1. It is the law
Canada's anti-money laundering rules require lenders to verify the source of every down payment. It is not personal. Every buyer goes through it.
Acceptable sources include:
Your own savings, including your FHSA, RRSP (through the Home Buyers' Plan) or TFSA
A gift from an immediate family member
Proceeds from selling another property
Borrowed funds, but only through certain insured programs and lenders
What you will need to show:
Savings: bank or investment statements showing the money has been in your account for at least 90 days. Large deposits will need an explanation.
Gift: a signed gift letter confirming it is a true gift that never has to be repaid, plus proof the money is in your account.
Sale of a property: the sale agreement and mortgage statement.
Borrowed: the loan details. The payment on that loan is added to your debt ratios.
2. It shows you can manage a mortgage
A down payment you saved yourself tells the lender you can budget, save and manage your money. That gives them confidence you will make your payments.
If your down payment is gifted or borrowed, the lender may look more closely at the rest of your application.
And the bigger your down payment, the more comfortable lenders are. More equity means less risk for them, and often a lower cost for you.
3. It sets your loan-to-value
Your loan-to-value (LTV) is your mortgage compared to the home's value.
Example: on a $400,000 home with 5% down ($20,000), your mortgage is $380,000. That is 95% LTV, the most a lender can finance.
The home's value is based on what a buyer pays and what an appraiser confirms. If any money changes hands behind the scenes, like a seller secretly covering part of the down payment, the true value and LTV are different from what the lender was told.
Important: every detail of the purchase must be disclosed to the lender. Hiding money or side deals is mortgage fraud, and it is not worth the risk.
Let us get your down payment ready
Getting your documents in order early makes approval smoother and less stressful. I will tell you exactly what you need, so there are no surprises. Book a call and let us get started.
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