Declaring interest and eventually committing to purchase a house is one thing; completing the purchase and moving in is another thing entirely. For that, you’ll need to meet a slew of requirements not least among which is the need to present and verify the source of your down payment. Verifying your down payment is an essential step in the home buying process as it helps credit facility providers confirm that your down payment was not sourced from borrowed funds. Expectedly your lender and in some instances insurance providers, the likes of the Canada Housing and Mortgage Corporation will need you to present this information before your home purchase can be completed.
Legally tenable down payment sources
For your down payment to scale the verification hurdle, it has to fall under any of the following down payment sources
- Down payment funds derived from the sale of your current residence
If you’ve sold your existing residence to raise funds for your new home, congratulations, this can be tabled as a valid down payment source for verification. To get on with the verification process, you’ll need to provide a valid purchase agreement document in addition to a statement outlining the mortgage balances, if any, currently linked to your current residence.
Tallying up the net proceeds and any outstanding mortgages should determine how much you can commit as a down payment for your new home.
- Down payment from your pocket
For some new homeowners, however, the money for down payment comes from their savings, not from the sales of an existing property. This is especially true for first-time homeowners who’re having their first foray into the real estate market. If you fit into this category, you’ll need to prove beyond any reasonable doubt that your current savings do not include monies sourced from lenders. If any of it is coming from sold investments, you’ll have to tender receipts and evidence of sales to back it up. Note also that these funds must have been in your account for at least 90 days.
- Gifts are also valid sources of down payments
Money gotten as a gift can also be presented as a credible down payment, as long as the following requirements are met
- The person giving out the monetary gift must formally declare that his/her gift is indeed a gift and not a loan masked as a gift. He/she must explicitly specify that the beneficiary is under no obligation to repay the gift.
- The gifted sum must have been transferred to the beneficiary’s account with proof
- The person providing the gift must be a direct relation of the recipient.
In addition to these mandatory requirements, CLN Mortgages mandates that any prospective homeowner using a gift as down payment must complete the Gifted Down Payment form as they submit their mortgage application. CLN Mortgages also reserves the right to further investigate mortgage applications and request additional documentation where large gifted sums are used as Down Payment. (this is a requirement from the lending institution)
Again, verifying your down payment is an essential step that must be fulfilled before your mortgage is released and insurance processed. If you’re looking forward to a fluid and hitch free home buying process, it’s imperative that you have everything as it pertains to your down payment and its verification sorted out even before the due closing date.