Managing your down payment is not often something people think about when looking to buy a home. Of course, there are lots of things to consider when preparing to purchase a home, and the down payment is an important one. Often as mortgage professionals, we speak in general terms without getting into fine details. These fine details are sometimes taken for granted despite being important to make sure that your home-buying experience is as smooth as possible.
One of the things that warrants clarification of the details is saving up for a down payment. It is not enough to simply have the adequate amount required for your down payment ready for the day your purchase closes. Without some guidance and preparation, you could be in for a big surprise when going to secure your financing.
When reviewing your mortgage needs with your Grimsby Mortgage Broker you need to first identify where your down payment is coming from. If part of the down payment is coming from a gift from a parent then it is important to let us know as it can affect how we structure the mortgage with the lender. Each source is treated differently so we need to identify each situation and discuss it together.
Mortgage lenders are required to confirm not only that you have the required down payment, but also the source that it came from. Typically, they will require a 90-day transaction history of all accounts that your down payment is coming from, which includes bank accounts, investment accounts, etc. This period is from the day the mortgage is approved, back 90 days. For this reason, managing your down payment, is very important.
During this 90 day period any “large transactions” into your accounts will need to be identified and the source of the deposits will need to be verified. Any transactions, typically with an amount of $1,000 or above, need to be verified for their source of funds. This has to be done for each of the involved accounts that the down payment is currently in, or has been transferred from, during the 90 days.
If part of your down payment is coming from your savings, chequing account, RRSP, TFSA and FHSP, then the lender will require a transaction history for each one of these accounts. If you and your spouse both have one of each of these accounts, that is a total of 10 accounts.
To further complicate things, each “large transaction” within each of those 10 accounts needs to be identified and the source verified. So, let’s say all of your required deposit is currently in your savings account and two months ago you deposited $20,000 from a GIC. Then you will have to provide a 90-day history of the GIC you cashed in, going back from the date that you cashed it in. If two weeks before cashing in the GIC your spouse transferred $5,000 from his chequing account into your savings account, we now need a 90 day history of his chequing account also.
Cash is an even trickier source when managing your down payment. If you receive any cash, it is imperative that you keep a paper trail of the source of the cash. As an example, if you sold a boat or motorcycle and received a cash payment, keep a copy of the sales receipt because you will need it. Often people will receive cash from a Stag and Doe or Wedding. Keep copies of a stag and doe ticket, wedding announcements, etc. as verification of the event.
If you are paid by your employer with physical cheques rather than automatic deposits, make sure that you save copies of the phyical cheques as the deposits won’t identify your employer’s name as automated deposits usually do.
Some transactions are necessary, however, as you can see there is a lot of work involved where multiple accounts and transactions are involved during the 90-day period prior to the mortgage approval. In light of this, try not to make unnecessary transactions between accounts, as each transaction needs to be verified, so it is best to wait until you have all the funds or a substantial amount before making the transfer so there is less paperwork.
For some additional information on how much of a down payment you will need for your purchase, you can read this article we previously posted. Here also is another good resource from the Government of Canada.
As your Grimsby mortgage broker, I will help you through the process of managing your down payment. You will thank me later if you take this advice!