Last updated: May 2019

Mortgage Down Payment - What is Permitted in Canada?

A question that often comes up with clients is about permitted sources of down payment and how long the money has to be sitting in the client's account. Here's the list I send to my mortgage customers:

DOWN PAYMENT: You must prove the source of the down payment plus 1-1.5% more for closing costs (lawyer, inspection, appraisal, property tax adjusment). Please provide clear copies of any combination of the following as they apply to proving the source of your down payment:

• Accumulated Savings - last 90 days of applicable savings and chequing bank account statements showing applicant’s name and account number.  Explain any large deposits.  Need history from each account that held the money. 
• RRSP/TFSA/Investment Accounts - **Last 90 days** of account statements showing applicant’s name and account number – RRSP amounts must be at least 90 days old to avoid tax withholding
• Gift - Gift letter signed by all parties, copy of actual cheque, and proof of deposit.
• Sale of Property – copy of signed Offer to Purchase, your Mortgage Lender's 2013 year-end statement (or more recent on-line version), current copy of the property title (30 days old max).
• Divorce Settlement – copy of divorce papers and proof of deposit OR lawyer’s proof of money held in trust
• Inheritance Amount – legal documentation and proof of deposit
• Sale of Vehicle or other Asset – Bill of Sale, copy of your old registration, and proof of deposit
• **NO** "mattress funds" – unexplained cash must be deposited and AGED for 90 days (re: the Money Laundering Act)
• Existing equity in different property via HELOC (provide title and mortgage details outlined next)
• Borrowed money via Line of Credit or Personal Loan (provide loan or LOC details).

Cash Incentives

In all cases, the buyer CANNOT borrow or receive monies from anyone related to the subject property sale nor can the vendor provide an incentive to buyer, with the exception of an incentive that improves the value of the property, such as a new roof.

Proceeds of Crime
Important to understand that the lenders are obligated to trace the source of all down payment money used in real estate transactions under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations.  This doesn't mean money must be in your account 90 days in order to use it.  Rather, that any deposits to your account within 90 days of your purchase transaction must be supported as to the source of funds (and legal!).

Down Payment Minimums

1. Minimum down payment for owner-occupied property is 5% with CMHC loan insurance
2. Minimum down payment for owner-occupied property is 20% without CMHC loan insurance
3. Minimum down payment for rental property is 20%
4. 0 down mortgage: Sorry, there is no zero down mortgage option from a bank. There is a way to create a no down payment mortgage. Trick is to borrow your down payment from another source, such as a line of credit or personal loan.

Besides down payment required to buy a property, you need to be able to mortgage qualify which requires sufficient income, employment, and credit.

Any other questions? Feel free to contact me.