“Most home buyers are aware that they will require a certain amount of money for a down payment. What many do not realize is that lenders are required to verify the source of the funds to ensure that they are coming from an acceptable source,” Dominion Lending Centres accredited mortgage professional Nathan Lawrence wrote in his recent consumer guide.
An iron-clad rule is transparency, the agent said.
“It is important that during the discussions with your mortgage broker that all the cards are on the table pertaining to your down payment,” Lawrence explained. “Be upfront about your down payment and where it is coming from. Doing so can save you time and stress later on in the process.”
“Lenders require a 90-day bank account history for the bank account holding the down payment funds. The statements must include your name, account number and statement dates,” he added. “Statements provided with blacked out names, account numbers or any other details are not acceptable. Unaltered documents are a requirement of confirming the down payment funds.”
More importantly, large or unusual deposits have to include proof of their sources. For instance, gifts from family members require signed gift letters, while vehicle sales or CRA tax returns need (respectively) receipts of sale or notice of assessment confirming the return amount. However, Lawrence warned that funds lent by friends or large deposits whose sources cannot be confirmed are deal breakers.
“Ensure that the funds for the down payment and closing costs stay in your bank account once you’ve provided confirmation. Those funds should only leave your account when they are provided to your lawyer to complete the purchase.”
“Lenders have the right to request updated statements closer to closing to ensure that the down payment is still there. If money is moved around, spent or if there are more large deposits into your account, those will all have to be confirmed,” Lawrence noted.
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Smoothly navigating the mortgage application process is a tricky proposition at best, and more so when it comes to the down payment verification phase.