Are you buying a house and maybe just totally frustrated now, with your lender, and all of their requests for more documents?

Let me shed some light on a popular question about the whole requirement to provide “proof of down payment” and the real reasoning behind it.

All Canadian banks, have implemented very strict policies to cover this subject called, “Anti-Money Laundering”. These policies have recently been strictly enforced and monitored because of “mainly” the back-door terrorist financing. With this in mind, you can probably see why there is such vigilant watch placed on the movement of money, especially any border-to-border movement. Canadian laws have been put into place to ensure all banks and lenders comply and that they all have consistent standards to ensure that questionable activities and money transfers cannot occur.

As you know, purchasing a house requires the movement of a very large amount of money and therefore, the monitoring of mortgage funds, also falls under that same strict scrutiny. The lender will always need to know where the funds came from, where the funds reside now, and what is the exact ownership of those funds. As long as a borrower can provide legitimate documents (bank statements, investment accounts, and other proof) that they have sufficient funds, here in a Canadian bank account or investment account, to satisfy the down payment and the closing costs, then a lender is fine with this.

Here is what a mortgage lender will typically ask for:

If you are pulling funds from an existing savings or chequing account, the lender will want to see print-outs, with your full name and address, bank name, and account number, going backwards from the current date. That account should show your down payment plus your closing costs there, and that these funds have been accumulated there. If there are large transfers, into your account, these will need to be explained to the lender. For example: if a lender sees a large deposit of say $120,000 going into your bank account, the lender has the right to ask where it came from and be prepared to even go after additional documents to prove the movement of the money. Lets say, you have recently moved to Canada, from the USA. You sold a house in the USA, and you had a $120,000 deposit made into your bank account (from your sale proceeds). This $120,000 shows up on your 3-month bank statement window print-outs. Yes, the lender can ask you to provide the proof of the sale document (a copy of the sale agreement) and perhaps even a copy of the lawyer’s statement of adjustments which would clearly demonstrate what funds you would have left over from the property sale.

If you are pulling funds out of your investment accounts, the lender may want to see copies of those investment accounts.

If you are pulling funds out of an existing RRSP account, under the government Homebuyer’s Plan, you should provide a copy of the RRSP statement, plus a copy of the completed and signed RRSP withdrawal form.

As frustrating as the documentation process may seem to a borrower, it is really part of the extreme due diligence that lenders have had to put into place to protect their mortgage “book of business”. It is best to fully co-operate with your banker or broker and provide the documents that are being requested to ensure a smooth financing process.

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario. Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca

or you visit her website at: www.missmortgage.ca

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) www.imba.ca Lic # M08005880 Brokerage Lic # 10680 Head office is located at: 15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.