In our previous blog post on the Mortgage Approval Process, we touched on the Compliance part of the approval. Downpayment verification, in particular, can be the most cumbersome part of Compliance fulfillment.
Before we go into detail about the document requirements, here is a little explanation as to why this process has evolved to where it is today.
Today’s lending environment places heavy emphasis on anti-fraud and anti-money laundering safeguards. With having a higher standard of mortgage underwriting practices in place, the industry’s intention is to build integretity and safety into the realm of mortgage loan transactions and investments. The higher the standard for borrower qualification, the more stable and resiliant Canada’s real estate market is expected to be. Now, this may be good news for the broader picture, but for the average person requiring a mortgage, it can be sometimes a bit painful tracking down all of the bits of paper the bank is asking for.
Verifying Your Own Savings/Investments/TFSA
Typically, the banks will ask for a 30 to 90 transaction history for all accounts where the downpayment funds are coming from. Some lenders require 30 days, and some are 90. When in doubt, have 90 days readily available. A statement format is the best way to provide this verification. Printouts from online banking can also be acceptable, but quite often for confidentiality purposes, names are left off of the printouts. When this happens, the bank will need another document to match the name(s) associated with the account, to the account number.
It is important to note here that the bank will ask for this history for all the accounts where the funds are held, or have been held. If you decide to move money between accounts in the 90 days prior, the bank will need to see the history for each transfer that is significantly over the usual transaction amounts in the account(s).
Therer are 2 parts to verifying downpayment funds from a famly gift; a letter that must be signed by both the donor and the recipient, and confirmation that the gift funds have been deposited into the recipient’s account. The amount specified in the gift letter needs to match the amount that is deposited into the account. Do not add extra funds to the deposit, as this just complicates things for the lender.
Each lender has their own gift letter that must be used. To verify the deposit of the gift funds, an account transaction history will have to be provided showing the gift funds going in. Automated bank machine (ABM) receipts are not sufficient.
If multiple gifts are coming from various family members, the above protocol is followed for each gift, from each family member.
Depending on whether your purchase is high ratio or conventional, it may be a requirement that the gift be from an immediate family member.
If you decide to use your RRSP under the Home Buyers’ Plan, the bank will ask you for your most recent RRSP statement, and a copy of the signed Home Buyers’ Withdrawal Form.
Sale of an Existing Owned Property
The lender will ask for all pages of the finalized purchase agreement, including all of the subject removal addendums, to confirm the sale is firm and binding. They will also ask for a recent mortgage statement from the existing lender to confirm the amount of the sale proceeds that will come from the sale of the property.
Timing of Available Funds
Some lenders have a minimum time frame that the funds must be in your account prior to closing. This minimum time frame can range from 15 to 30 days. If you are a Non-Resident that has to arrange wire transfers to get your funds into Canada, you need to be aware of these time deadlines to meet your lender’s guidelines.
If you are wire transferring funds from one account to another, be prepared to provide an account transaction history showing the funds leaving the account, and an account history for the account the funds are going into. They (the lenders) want to see confirmation of the funds going into the account. The lender will also want a copy of the wire transfer document.
Sales of Vehicles or Other Chattels
Any large item sales should be documented with copies of the Bill of Sale and/or Owner Transfer documents. Funds should be received by way of a bank draft, and a photocopy of the draft should be made before the funds are deposited.
Deposits on New Construction
When you are buying into a new construction project, you often end up providing 3 or 4 deposits during the time the project is under construction. When you finalize your financing towards completion, the bank will ask you for confirmation of the funds you have already provided to the developer. You can help yourself by keeping your bank statements handy that show each deposit coming out of your account, and making a photocopy of the bank draft(s) before handing them in to your realtor’s office. This should be the protocol for each deposit given.
Remember that the documents you provide should display your name(s) and a current date. If only an account number is shown, the bank will ask for a corresponding document to confirm account ownership.