Understanding Down Payment Documentation: What to Expect and Why It Matters
The part of mortgage approval nobody likes but everyone needs
Confirming your down payment is one of the most tedious (and sometimes invasive) steps in getting a mortgage approved. Unfortunately, it’s also one of the most important. Here’s why lenders require it, what documents you’ll need, and how I make the process as easy as possible for you.
Why lenders need to confirm your down payment
There are two main reasons:
- To confirm you have enough funds.
Lenders must verify that you have enough money to cover both the down payment and closing costs. - To comply with anti–money laundering (AML) laws.
Canadian lenders must follow federal AML rules enforced by FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada) and, for insured mortgages, CMHC. These rules ensure your down payment isn’t connected to criminal activity.
To meet AML requirements, we need to provide a complete 90-day history of your down payment funds. Any transactions over $1,000 must be explained. If money was transferred from another account, we’ll also need a 90-day history of that account.
How the documentation process works
It can be a bit of a paper chase—but I handle most of it for you.
Here’s what we do:
- You provide bank statements showing your down payment funds.
- I’ll review and highlight anything that needs clarification.
- If we need to trace funds from another account, I’ll ask for those statements too.
- I’ll prepare the explanations and notes the lender requires—you just supply the paperwork.
Other common down payment scenarios
1. Gifts from family
If a family member is helping you with your down payment, we’ll need to document it. Lenders typically allow borrowers to receive gifts from immediate family members (parents, siblings, grandparents). If you're receiving a gift from non-immediate family, let me know so we can discuss your options.
The lender will require a gift letter stating that the money is a gift and not expected to be repaid. Each lender has their own template, so once we determine which lender we're working with, I'll provide the letter for you and your family member to sign.
2. Funds from outside Canada
If your down payment is coming from outside Canada, whether it's your own funds held abroad or a gift from family overseas, let me know immediately. Depending on where the funds are coming from, there may be restrictions on how long they need to be in Canada before they can be used.
3. Investments as your down payment
If your down payment is currently invested (for example, in stocks, mutual funds, or a TFSA), you do not need to liquidate the investments just for verification purposes. We simply need a 90-day history of the investment account.
However, it's important to make sure your down payment isn't locked in an investment or account that you won't be able to access when you need it. Common examples include:
- Employer RRSPs that aren't accessible
- Non-cashable GICs that haven't matured yet
Make sure you'll actually be able to get the funds out when it's time to close.
4. Non-traditional sources
Unfortunately, cryptocurrency, cash, and other non-traceable assets are not typically accepted as sources for a down payment. If you're planning to use one of these sources, let me know as soon as possible so we can put together a plan to make it work.
Quick Summary
- Lenders require 90 days of statements to verify your down payment.
- Every transaction over $1,000 must be documented.
- Gifts are allowed from immediate family and need a signed gift letter.
- Foreign funds may have holding period restrictions.
- Investments can count, but must be accessible when needed.
- Cash and crypto are not accepted as down payment sources.
- I’ll handle the lender explanations—you just provide the documents.
Next Steps
The key to making down payment documentation as painless as possible is getting ahead of it early. If you have any questions about your specific situation, or if you're unsure whether your down payment will meet lender requirements, reach out now so we can work through it together.
Book a consultation or call 778-988-8409.
Glossary
AML (Anti–Money Laundering):
Government regulations designed to prevent illegal funds from entering the financial system.
Closing Costs:
Fees and expenses due at the time of closing, separate from your down payment.
CMHC (Canada Mortgage and Housing Corporation):
A federal agency that provides mortgage default insurance for high-ratio (under 20% down) mortgages.
Down Payment:
The portion of the purchase price you pay upfront when buying a home.
FINTRAC:
Canada’s financial intelligence unit, responsible for enforcing AML compliance.
Gift Letter:
A form confirming that funds received from a family member are a gift and don’t need to be repaid.
Tim Lyon
Mortgage Consultant
