In order to buy a home, the first thing you will need is a down payment. The more money you put down, the less interest you will pay over the life of your mortgage. The minimum mortgage down payment amount that is typically required in Canada is 5%. In order to put less than 20% down, mortgage default insurance is required. Mortgage insurance premiums are paid once, but can be added to the principle of the mortgage. Read Learn Before You Leap for more helpful tips before you buy a home. Do you have questions about down payments? Contact Us today!
Tips from the Pro’s
The moment you are thinking about buying a home, you should start amassing all your different sources of money for your down payment into one single bank account. Holding your down payment in a “staging account” may cut down on the requested paperwork and simplify the verification process.
Ideally when it comes time to verify your down payment most of the money will have been in the staging account for a minimum of three months.
Typical Down Payment Sources
Personal Savings: The most common source of a down payment is personal savings, held in various accounts such as savings accounts, chequing accounts, mutual funds, GICs, RRSPs, TFSAs, and stock trading accounts.
Gifted Funds: Many borrowers, especially first-time homebuyers, rely on help from an immediate family member in the form of gifted money.
Family Loans: Family Loans are treated like bank loans, and can affect the mortgage approval.
Self Employed: Some applicants rely on money from their business bank accounts.
Overseas Bank Accounts: Some borrowers have overseas bank accounts, or they have family overseas who wish to help out with gifts.
Cryptocurrencies: You will not get far if you are planning on using cryptocurrencies for the down payment, as they are not currently accepted in the mortgage world.
What do lenders want to see?
Most lenders want to see a 90-day history, but in some cases lenders may want to go back one or two years to satisfy themselves that the source of funds is legitimate.
Why do lenders care about the source of the down payment?
There are four things lenders are looking for to be sure that a down payment is from a legitimate source.
- Anti Money Laundering – Large deposits always need an explanation, whether they are being used for the down payment or not. There is no agreed standard minimum transaction requiring a second look. It will depend on the lender and the borrower’s profile.
- Sanctioned Countries – Lenders care if the money emanates from a sanctioned country. This applies to the down payment, as well as to the borrower’s earnings.
- Tax Avoidance – Lenders will want an explanation for unexplained cash deposits and large e-transfers.
- Borrowed Money – If any part of the down payment or closing costs is borrowed, the lender needs to know.
If you have any questions regarding down payment contact one of our experienced Mortgage Advisors. We can answer all of your mortgage questions.
Original Article – Canadian Mortgage Trends