How should it be verified or which documents prove the ownership and origin of the funds of the initial payment?
In our previous episode, we talked about saving strategies to gather enough capital for the initial payment or down payment. In this episode three, we will talk about how we should get prepared to verify the origin of that fund, to verify its ownership and the importance of planning all of this with ahead of time.
I would like to make a small parenthesis before entering the subject, just to picture the importance of what we are about to comment.
Today, Banks and Financial Institutions have taken the baton of many verifications that correspond to the Governments, we are talking about the issues of corruption, money laundering and terrorism financing.
This issue is of first order of importance in the Compliance departments of each Financial Institution. Verification, to which we will refer, is the way in which people or companies demonstrate and give certainty of the origin of their money so that they can have access to the financial system.
The verification focuses precisely on demonstrating with our documentation the origin of our money and offering confidence that it does not come from illicit activities, on the one hand, and on the other, to reliably demonstrate the ownership of the fund, and that it has been obtained from work or through any other legal means.
So, resuming the topic of this episode, if you are in the stage of verifying the initial payment to buy your new home, that means that soon you will be in a position to make a purchase offer or maybe you already have it. Congratulations! That is a huge step already. But remember that now your offer is conditioned to financing, and it is time for your mortgage broker to work in finalizing your mortgage.
It is at this time that your mortgage is approved by the Financial Institution or lender, that they will want to be sure of the origin of the money and that you have not borrowed the initial payment, that is, that it comes from your own funds, so you must be prepared to prove it.
We suggest you have a special folder where you place all the information related to the initial payment, in which you include the account statements and any other documentation proving your ownership of that fund and its origin. The account statements must have your full name. Sometimes, the online banking impressions do not show your name, so you must double-check that they are issued in your name in advance.
Whatever type of deposit, whether large or small, we must show where it comes from. If you transferred money from another account or sold investments, you should have the records for those accounts with you. In case you have received those funds as a gift, remember that we talked in Episode 2 about them and said that you must have a gift letter signed by the donor and bring a bank statement from their account verifying that the funds from the gift were in the donor’s account before being transferred to your account. You must ensure that any gift funds must be in your account no later than 15 days prior to closing the purchase.
It is extremely important that you do not wait until the last minute to gather these documents, as they are a condition for the lender to be able to release the funding and for the sale to be completed.
If you are using RRSP money, (Registered Retirement Saving Plan), as we talked in Episode 2, you must verify that you have at least a three-month history of that account with you. Now, everything deposited within the last 90 days cannot be used as an initial payment, otherwise, it will be levied on Income Tax and the tax benefit will be lost, as we saw it in the previous Episode.
If you get money of your own, but must bring it in from outside Canada, make sure it is in your Canadian account at least 30 days before you need it, and be prepared to show the last three bank statements for that foreign account.
If you already have a house here in Canada and you plan to sell it in order to buy a new one, it is important that you consider that you must provide a firm purchase-sale contract, as well as your current mortgage statement.
And last but not least, don't spend every last dollar for the down payment. Of everything you check, you must also have available and demonstrate that you have an additional 1.5% of the purchase price to cover closing costs, which may include:
Legal fees
Appraisal fees
Transfer tax
Home inspection
Title Registration
Insurance
Tax Adjustment
Moving Costs
Usually this is what you have to check for the Initial or Down Payment.
In the next Podcast we will talk about how income should be shown, this is also an important topic.
We hope this information was useful for you. If you think it can be helpful for someone else, feel free to share the link. Thank you for listening to us. Bye!
We hope this information has been useful to you, and if you think it could be useful to someone else, share the link. You can count on our mortgage advisors during this process. Do not hesitate to visit us:
Tel: 647.704.2209.
Thank you for listening to us. Bye!
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