As part of the mortgage documentation series, last week we took a look at the type of paperwork required for confirming income. This week, we will have a look at the ins and outs of downpayment verification.
Your downpayment may come from many different places. It could currently be in an RRSP, GIC or some other type of investment account. If could be simply be sitting in your savings or chequing account or it could be coming to you as a gift from a parent or sibling. Except in the case of the gift, the lender will want to see 90 days history of the account or investment that the downpayment is located in to get an idea of how it accumulated.
It may seem a little invasive, especially if you have to provide three months history for your everyday chequing account, but the lender needs to confirm that your downpayment has not been borrowed, say, from a line of credit or another bank loan of some kind. They won’t be examining your personal spending habits, they are mainly looking for any large deposits outside of regular pay, as these would require an explanation. For instance, if you received a refund on your taxes and you were using it as part of your downpayment, the lender may ask to see the receipt from the Government cheque to confirm that was indeed the source of those funds.
Also, if you have moved money around, perhaps from a saving to a chequing account, the lender will need to see 90 days history from both accounts, essentially creating a paper trail of the funds right up to within a few days of when the lender is examining the documentation. Again, a lot of paper but the lender must confirm that the funds are not borrowed as that would require different kind of underwriting of the mortgage. In addition, the lender is guarding against fraudulent or ill-gotten funds by asking for explanation of large deposits.
To help make things a little clearer, here is a breakdown of what would be required for the various types of accounts your downpayment may be held in:
Savings or Chequing account – 90 days of recent banking history is required.
You can submit your monthly statements or the history can be printed out from your online banking site aslong as it shows your name, account number and the name of the banking institution. If it doesn’t show your name, be sure to also submit a statement the lender may have mailed you that does show your name to cross reference with the online statements – if it is a chequing account, a copy of a void cheque works, too. Any large deposits will require an explanation and possibly more supporting paperwork.
RRSP or Investment Account – 90 days recent history is required along with proof of cashing out the investment or deposit of the funds to your bank account.
Most banks and investment companies will issue quarterly statements so the last two statements will usually do the trick. If only yearly statements are issued, the applicant would provide the last statement plus a letter from the company holding the investment confirming what the current balance is. The key with investments is that the statements show that the funds are liquid and you would indeed have the ability to cash them to use for your downpayment. Again, be sure they show your name, account number and the name of the bank or investment company.
Lastly, if part or all of the downpayment is coming to you into you in the form of a gift, your gift giver will be required to sign a letter stating that the funds are indeed a gift and you are not required to pay it back. You will have to show proof that the funds have been deposited to your personal account via a bank statement and the lender may ask the gift giver to provide proof of where they are obtaining the money for the gift. This is a new practice and it will vary from lender to lender but almost all of them are atleast contacting the gift giver to verbally confirm the information on the gift letter.
For more information about the types of documentation needed when applying for a mortgage, please contact one of our Licensed Mortgage Brokers.