What can be used for a Down Payment?

The mystery of the down payment is constant. Today we’re going to clear up one of those discrepancies by going over the acceptable sources you can use to fund your down payment. By being aware of your options in light of all the government changes in the last few years, you’ll be able to make your home ownership dreams a reality sooner.

Here are 6 sources for a down payment deemed acceptable:

1. Savings

The most obvious source of down payment funds is that of your own personal savings. These can come from your everyday bank account or a TSFA (Tax Free Savings Account). The only documentation required in this case is a 90 day history record of the account, as well as a 90 day history from any account you may have transferred funds to/from.

2. RRSPs

In Canada, you are able to use up to $25000 of your RRSP to contribute to your down payment. In order to do this you will need to contact your RRSP provider so the proper forms can be completed. By following protocol on withdrawing RRSP funds for your down payment you will not be penalized for an early withdrawal. Your mortgage provider will want to see a 90 day history of your RRSP account as well. It is important to note that your RRSP provider will most likely expect you to reinvest in your RRSP within 15 years, so make sure you clarify the terms.

3. Gifts

Monetary gifts are permitted by mortgage lenders as long as the funds come from an immediate family member (parent, sibling, or grandparent). All parties involved will be required to sign an official letter that acknowledges the details of the gift and states that the gift will not be paid back. Your mortgage lender will also require confirmation that the family member actually possesses the necessary funds and verification that the funds are deposited in your bank account.

4. Borrowing

There are other sources some lenders will let you borrow funds from for your down payment. These include, but are now limited to, personal loans and lines of credit. To qualify for this option you will need to provide proof of a strong credit score and employment with one company for at least 2 years.

5. Home Equity Line of Credit

If you currently use a home equity line of credit form of mortgage on your primary home, you may be eligible to use an advance against it for the down payment of the new home.

6. Sale of Assets

If you have an asset you are able to part with (ex. Vehicle) you can put the sale funds towards your down payment. This option requires a proper receipt and proof of deposit into your bank account.

The main theme in all 6 of these options is that all require a 90 day history, proof of deposit, and/or proper documentation. These rules are in place to ensure that all down payment funds are legally sourced. In addition to the down payment, keep in mind that you must also have an additional 1.5% of the purchase price to cover the closing costs, legal fees, taxes, and insurance! If you have any questions or would like to assess your eligibility feel free to contact AC Lending Group!