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What to Know About Your Down Payment

What to Know About Your Down Payment

Getting a new home loan can be a big step and it can often take years of preparation before a person is ready to buy a home. This means paying close attention to finances and monitoring where every penny is spent. Not only will mortgage brokers be analyzing your buying habits, you will need to show that you are a responsible individual with ample savings. Before you start looking for home loans, use this quick guide to learn everything you need to know about down payments.

Start Documenting Everything

What to Know About Your Down Payment Piggy Bank and House imageEven if you already have the down payment saved up, you will need to be able to prove you didn’t borrow the money from someone else. You also need to be able to prove you aren’t going to spend it on something else the second the home loan is processed. The easiest way to do this is to start depositing extra cash into an accessible savings account. If you are able to, sign up for direct deposit or start putting your entire check in the bank, rather than cashing it. This will help lenders clearly see where your money is going month after month.

Lenders look for stability. They want to make sure that they will be paid back even in the event of an emergency. Keeping strong records for at least three months and having some excess in savings helps show responsibility.

Gifted Money

You can buy a home using gift money from a birthday, wedding, college graduation or other life events; however, you need to be prepared to document every penny you receive. If a relative or friend provides you with a large gift, you may need to contact them to fill out paperwork. Keep in mind that large gift funds intended to go towards the purchase of a home can typically only come from an immediate relative.

Have Paperwork for All of Your Assets

Lenders need to be able to see the big picture. If you have investments, you need to be able to show that they belong to you and that you can access the funds. People who are planning on cashing out their investments will need to do so about 3 months before they apply for a mortgage. This ensures the funds will be transferred and cleared for use before closing.

Bringing Money into Canada

Many Canadians have relatives that reside in the United States or other parts of the world. While the process and regulations for receiving gift money are the same, you will need to allow a little extra time for the funds to clear. For example, some banks may hold transfers for up to 30 days for security purposes. If you have never received funds from outside of Canada, wait at least 90 days to confirm the funds are available before applying for a mortgage.

Don’t Just Have the Down Payment Amount

It is important to note that there are far more closing costs than just the down payment. You will likely have to pay for a home inspection, legal fees, utility set-up fees, moving costs, and other expenses.

There are several factors to consider when saving up for a down payment. Whether you are cashing in an asset, receiving a gift, or spent years of saving, you need to be prepared to explain your financial situation in detail.

 

Photo credits: money, piggy bank & house

About The Author

Jeff S.

Proud father and husband. Loves music, Nine Inch Nails, UFC and inbound marketing.

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