Acceptable Down Payment Sources

So there seems to be some misunderstanding about down payments. It’s no wonder really given that there were a number of changes made over the last few years by the government…
So there seems to be some misunderstanding about down payments. It’s no wonder really, given that there were a number of changes made over the last few years by the government in regards to all things mortgage. This week we are going to take a look at acceptable down payment sources, so you can achieve your dream of home ownership ASAP.

RRSP’s
You are able to utilize up to $25,000 of your RRSP for your down payment. You will let you current RRSP provider know that you are using the funds for this purpose so that they can complete the process with the correct forms, ensuring that you are not penalized for an early withdrawal. We will need to show the lender a 90-day history on these funds. The expectation is that you will reinvest into your RRSP within 15 years.

Gift
Maybe your family is able to help with a gift? That works too. The gift must come from an immediate family member, such as your parent, sibling or grandparent. An official letter will be signed by all parties which states that the gift is never expected to be paid back. You will also be required to show proof of the deposit going into your bank account. Heads up on this one that some of our lenders now require verification of the funds in the account of your family member.

Savings
The funds can of course come from a good old fashioned savings account or a TFSA. Again, we will have to provide a 90-day history on this account, and if you have been transferring from another account, we will need a 90-day history on that one too.

Sale of Assets
If you have a vehicle, or a collection, or a quad or any manner of asset that you are able to sell and we can properly document it through a receipt and proof of deposit, you have an acceptable down payment source.

Home Equity Line of Credit
Perhaps the mortgage on your current home is a Home Equity Line of Credit? If so, we are able to use an advance against this for the down payment on another home.

Borrowed Funds
A few of our lenders will still allow you to borrow the down payment from an alternate source. This could be a personal loan with set payments or a Line of credit where you are able to pay the interest only. You must have strong credit and have been with your current employer for a minimum of 2 years to qualify for this. We also have to factor in the repayment on the new loan as a part of your affordability ratios.

You have probably noticed a theme emerging. We are required to provide a 90-day history of all funds being used for the down payment on a home to make sure that all funds have been legally sourced. If you have a large deposit going into your account, the lenders will need to know where in the heck it came from.

The minimum down payment for a purchase is 5% and you will also need to show you have an additional 1.5% of the purchase price available for the closings costs, which include the legal fees, property tax adjustments, title insurance and others.

So there you have it in a pretty synopsis. Have a great week!
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