Down Payments
What is a down payment and what are acceptable forms of down payment verification?
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Down payment is the money paid to make up the difference between the purchase price and the mortgage amount. There are many different acceptable forms of down payment for mortgage qualifying with CMHC, Genworth and Canada Guarantee.
The most common amount of a down payment needed to qualify for a home is 5%. The more of a down payment you have to put down, the better the mortgage deal is for you. Traditionally speaking, if you have at least a 20% down payment, there will be no CMHC, Genworth or Canada Guarantee premium added to the mortgage.
Different classifications of down payments are as follows:
Accumulated Savings
When you have partial or the entire down payment coming from either your checking, savings, RSP, mutual funds etc., you are required to provide documentation of accumulation of the funds by way of a 90 day history on the funds. The entire funds do not need to have been in your account the full three months, but need to show a gradual accumulation of the down payment saved and any large deposits or transfers to your account will need to be explained as accumulated savings can not be borrowed.
Gifted Down Payment
If the down payment has been gifted to you by an immediate family member, you will need to provide proof of the gifted money deposited into your bank account by way of bank statement with teller stamp verifying your name and account number on the statement and the amount and date of the gifted money. You will also be required to provide a completed gift letter to confirm gifted down payment. The deposited gifted amount must equal the exact amount shown on the gift letter.
Property Sale Proceeds
You may sell an owned property and use some of or all of the net sale proceeds towards the purchase of another home as long as you provide verification you have owned that other property for at least the prior three months. You will need to provide a copy of the fully accepted sale agreement and copy of the statement of adjustments from the sale.
Home Buyers' Plan (HBP)
The Home Buyers' Plan (HBP) is a program that allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSP's) to buy or build aqualifying home for yourself or for arelated person with a disability. To participate in the HBP, ONE of the following conditions must apply:
- You are withdrawing funds to buy or build a home for yourself as
a first-time home buyer.
or
- You are withdrawing funds to buy or build a home for a related person with a disability .
In addition, ALL of the following conditions must apply:
- You must enter into a written agreement (Offer of purchase) to buy or build a qualifying home. The agreement may be with a builder or contractor, or with a realtor or private seller. Obtaining a pre-approved mortgage does not satisfy this condition.
- You intend to occupy the qualifying home as your principal place of residence.
- Your repayable HBP balance on January 1 of the year of the withdrawal is zero.
- Neither you nor your spouse or common-law partnerowns the qualifying home more than30 days before the withdrawal.
- You are a resident of Canada.
- You buy or build the qualifying home before October 1 of the year after the year of withdrawal.
You are responsible for making sure that all HBP conditions that apply to your situation are met. If a condition is not met while you are participating in the plan, your RRSP withdrawal will not be considered eligible. You will have to include the RRSP withdrawal as income on your income tax return for the year you received the funds. If you do not meet the conditions to participate in the HBP in the current year, you may be able to participate at a later date.
Sale of an Asset
The down payment can come from a sale of an asset such as a vehicle. You will need to provide proof of owning the vehicle for the prior three months by way of registration papers and insurance papers. You will need to provide a satisfactory bill of sale and a copy of the check deposited to your account or copy of bank draft payable to you in regards to the vehicle.
