Down payment

If you have less than 20% down payment, mortgage insurance is required through Canada Mortgage & Housing (CMHC), Genworth or Canada Guaranty. Homeowners no longer need the minimum 5% down payment from their own funds to purchase a home.  You can now use borrowed funds for your 5% down, but keep in mind that there are higher credit criteria and your insurance premiums increase.

 

Down payment from your own resources (non borrowed):

You must supply verification satisfactory to the lender of accumulated savings from non-borrowed funds.  This may be in the form of:

• Copy of your bank statement or bankbook (including cover) showing a minimum three-month history.  Any large deposits during this time period must be explained and documented.
• Copy of RRSP statement, term deposits, CSBs, or other investments.

 

Down payment from a gift (non borrowed):

All or part of the minimum equity requirement (5% for down payment plus 1.5% for closing costs) may be provided by way of a financial gift, as long as all of the following conditions are met:

• The donor is an immediate relative of the borrower (recipient); and
• The Approved Lender has verified that the money is a genuine gift; and
• The Approved Lender has verified that the funds are in the borrower’s (recipient’s) possession at least 15 days prior to closing.

The Approved Lender will verify the authenticity of the gift by obtaining a written confirmation, signed by the donor and the borrower (recipient), which will include the following points:

• The money is a genuine gift from the donor and does not ever have to be repaid;
• No part of the financial gift is being provided by any third party having any interest (direct or indirect) in the sale of the subject property.

 

Borrowed down payment:

Effective March 1, 2004, homebuyers can get their down payment from borrowed sources that include:

• Lender cash back incentives;
• Personal loans, lines of credit or credit cards;
• Unsubstantiated gifts.

When using a borrowed down payment, there are a higher credit criteria and also increased insurance premiums.

 

Down payment from the sale of an existing property:

You will be required to provide a copy of the unconditional Agreement of Purchase and Sale on your existing property.  This needs to be accompanied by a copy of a recent mortgage statement showing the balance owing on any mortgages presently registered against the property.  The difference between the sale price and the mortgages owing will substantiate the funds available for your down payment.

 

If you have any questions regarding your down payment or any other mortgage related question please call (250) 862 1806 or email [email protected].

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.