When you’re considering purchasing a property know that the source of your down payment is a very important part of how the lender views your financial situation and establishes your mortgage loan to value.

Lenders are legally bound to assure that the money used within your purchase is legitimate and that there are no possible ties to money laundering. Therefore, lenders must document and verify the source of your down payment on each home purchase.

There are multiple forms of down payment which are considered acceptable such as, borrowed funds through an insured fund called Flex Down, it could be money you receive as a gift from a family member or your own savings account. 

In order to prove and validate your funds you will be required to provide bank statements showing the money has been in your possession for more than 90 days or that you have secured the funds through legitimate deposits or other acceptable sources.

If part of your down payment is borrowed, you will need to include the cost of the payments associated with the borrowed portion of the down payment in your debt to service ratio. If you’re receiving a gift from family, you will need to provide a gift letter to prove the funds are a true gift and have no schedule for repayment and that the money has been deposited into your account. 

Where your down payment is sourced from tells your lender if you are able to purchase this property. It is always preferable to show the lender that the down payment is coming from your personal funds. This shows that you have suitable cash flow, that your able to save money, manage your finances and most of all that you’ll be able to make your mortgage payments on time. If your down payment is a gift the lender will tend to look deeply and thoroughly into your application. The larger the down payment the better the lender will feel about your approval. The more equity you have invested in your property the less likely you are to default on your mortgage. 

Your down payment establishes the loan to value ratio. The LTV is the percentage of the property value compared to the mortgage amount. Canadian lenders are not able to lend more than 95% of a property’s value. An appraisal of the property will have other properties allowing the appraiser to compare what other people have paid for similar properties in your area. All details regarding the real estate purchase and sale must be disclosed to the lender thoroughly. If there is ever money being transferred behind the scenes this will impact the LTV and the lender will pull out of the deal as non-disclosure to the lender is considered fraudulent. 

Whatever your circumstances or concerns we are here to help, and we have all the answers you need to make a safe, secure and flawless purchase. Give us a call if you have anymore questions, we are here for you.