Down payments are a critical component of purchasing a home and must be verified by most lenders. A down payment is the money you pay upfront to bridge the gap between the purchase price and the mortgage amount. Various sources are considered acceptable for a down payment, and each comes with specific requirements for verification.
The minimum down payment to qualify for a home is typically 5% of the purchase price. A larger down payment often results in better mortgage terms. For instance, a 20% down payment eliminates the need for Canada Guarantee, CMHC, or Sagen mortgage insurance premiums, reducing overall costs.
If your down payment comes from your savings, such as checking or savings accounts, RRSPs, or mutual funds, you’ll need to provide a 90-day history of these funds. While the funds don’t need to have been in your account for the entire three months, the documentation must show a steady accumulation, and any large deposits or transfers will need explanations. Accumulated savings cannot be borrowed.
Gifted down payments from an immediate family member are another option. You’ll need to provide proof of the gifted funds deposited into your account and a signed gift letter confirming the amount. The amount deposited must match the figure on the gift letter exactly.
Proceeds from the sale of a property can also serve as a down payment. You must show that you owned the property for at least three months prior, along with documentation such as a sale agreement and a statement of adjustments from the sale.
The Home Buyers’ Plan (HBP) allows first-time homebuyers or individuals buying for a related person with a disability to withdraw up to $35,000 (soon increasing to $60,000) from their RRSPs for a home purchase. To qualify, you must meet specific conditions, such as entering a written agreement to buy or build a home and ensuring no previous ownership of the qualifying property within 30 days before withdrawal.
Additionally, you can use the sale of an asset, such as a vehicle, as a down payment. In this case, you’ll need to provide proof of ownership for at least three months, such as registration and insurance documents, a bill of sale, and evidence of the funds deposited into your account.
Understanding and verifying the source of your down payment is essential to the home-buying process, ensuring compliance with lender requirements and a smoother transaction.