1. Your Own Money
What banks consider the best source of downpayment is your own savings: for this, banks/insurers require a three month history of any account being used for a downpayment. They look at the three months to confirm there hasn’t been any large or unusual deposits. If there is a large deposit they will ask for proof – IE funds from the sale of a car we would need the receipt of sale. Funds from selling a previous home we would need the sale documents from the lawyer etc.
HOT TIP – if you are planning on buying a home in the near future try not to move your money around. If a large deposit is made and it is a transfer from one account to another.. then you will be asked for three months history of both accounts! This can be cumbersome paperwork wise.
2. RRSP
First-time homebuyers in Canada can use up to $35,000.00 of their RRSP’s without penalty. Anything over this OR people who aren’t first-time buyers will be subject to a withholding tax. Banks generally consider only 70% of the value of the RRSP to be usable and also want to see it cashed out before closing. So if you were using $100,000.00 from RRSP’s the banks would consider this to be $70,000.00 going toward the downpayment after the withholding tax.
3. A Gift
Generally, banks will allow a gift from a family member. For example, parents or an early inheritance from grandparents. Banks won’t accept that your friend wants to give you a gift (some friend!) they will consider this a loan. Paperwork that is required: we have a standard gift letter that is used. This is signed by the giver of the gift as well as the home buyer. The funds then need to be deposited into the buyers account no less than two weeks prior to closing on the new home. Some lenders will also ask for proof that the gift came from the person in the letter (Ie. a copy of the cheque or e-transfer).
4. Equity From Another Home
Own a home and want to refinance to buy a new property. No problem! Using either proceeds of from a refinance or a home-equity line of credit are both considered fine options for downpayment. We have to account for the new debt though. So increasing a mortgage on one property will mean that you qualify for less of a mortgage on the new property.
5. Credit cards, Loans, and Personal Lines of Credit
Some banks will allow you to use these sources of funds for downpayment; however, we generally have to use a 3% payment to account for the new debt. So this would mean if you were taking $10,000.00 off of a personal line of credit we would have add a payment of $300 to your liabilities. This can greatly reduce what purchase price the buyer would qualify for.
6. Money Under the Mattress
We are well aware that some people keep thousands or even tens of thousands in cash at home. Best bet for using this for a downpayment is to deposit in your bank and wait 3 months. Then we have the history and it becomes usable as part of your downpayment.
7. Foreign Funds
This could be savings in a foreign account or a gift from family member in another country. Most banks want to see these funds in Canada for at least 30 days as well as have a history in the source country. Note that some counties are looked at with extra scrutiny. Best to talk to your broker before putting in an offer when funds are coming from out of country If the money has already been in your Canadian account for 3 months it is considered as your own funds in line 1 and no extra documentation is needed.
8. Insurance Claim or Legal Proceeds (or lottery winnings?!)
This is fine for downpayment; however, proof of the source of funds would be required (such as a copy of the claim or legal documents – or a winning lottery ticket!).
Learn more by contacting our mortgage team, or apply now using our no-obligation application form to see where you stand.