The Source Of Your Downpayment Matters

Shawn Johnson • October 30, 2024

If you’re looking to purchase a property, although you might not think it matters too much, the source of your downpayment means a great deal to the lender. Let’s discuss the lender requirements, what your downpayment tells the lender about your financial situation, a how downpayment helps establish the mortgage loan to value.


Anti-money laundering

 

Lenders care about your downpayment source because, legally, they have to. To prevent money laundering, lenders have to document the source of the downpayment on every home purchase.


Acceptable forms of downpayment are money from your resources, borrowed funds through an insured program called the FlexDown, or money you receive as a gift from an immediate family member.


To prove the funds are from your resources and not laundered money from the proceeds of crime, you’ll be required to provide bank statements showing the money has been in your account for at least 90 days or that you’ve accumulated the funds through payroll deposits or other acceptable means.


Now, if you’re borrowing all or part of your downpayment, you’ll need to include the costs of carrying the payments on the borrowed downpayment in your debt service ratios. If you’re the recipient of a gift from a direct family member, you’ll need to provide a signed gift letter indicating that the funds are a true gift and have no schedule for repayment. From there, you’ll need to show the money deposit into your account.


Financial suitability


Lenders care about the source of the downpayment because it is an indicator that you are financially able to purchase the property.


Showing the lender that your downpayment is coming from your resources is the best. This demonstrates that you have positive cash flow and that you’re able to save money and manage your finances in a way that indicates you’ll most likely make your mortgage payments on time. If your downpayment is borrowed or from a gift, there’s a chance that they’ll want to scrutinize the rest of your application more closely.


The bigger your downpayment, the better, well, as far as the lender is concerned. The way they see it, there is a direct correlation between how much money you have as equity to the likelihood you will or won’t default on their mortgage. Essentially, the more equity you have, the less likely you will walk away from the mortgage, which lessens their risk.


Downpayment establishes the loan to value (LTV)


Thirdly, your downpayment establishes the loan to value ratio. The loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. So, if you’re buying a home for $400k, the lender can lend $380k, and you’re responsible for coming up with 5%, $ 20k in this situation.


But you might be asking yourself, how does the source of the downpayment impact LTV? Great question, and to answer this, we have to look at how to establish property value. Simply put, something is worth what someone is willing to pay for it and what someone is willing to sell it for. Of course, within reason, having no external factors coming into play. When dealing with real estate, an appraisal of the property will include comparisons of what other people have agreed to pay for similar properties in the past.


You’ll often hear of situations where buyers and sellers try to inflate the sale price to help finalize the transaction artificially. Any scenario where the buyer isn’t coming up with all of the money for the downpayment, independent of the seller, impacts the LTV.


All details of a real estate transaction purchase and sale have to be disclosed to the lender. If there’s any money transferring behind the scenes, this impacts the LTV, and the lender won’t proceed with financing. Non-disclosure to the lender is mortgage fraud.


So there you have it; hopefully, this provides context to why lenders ask for documents to prove the source of your downpayment. If you’d like to talk about mortgage financing, please connect anytime; it would be a pleasure to work with you.


Shawn Johnson

Senior Mortgage Specialist

First-Time Buyer? Here’s How to Tell If You’re Ready

By Shawn Johnson • September 10, 2025
Ready to Buy Your First Home? Here’s How to Know for Sure Buying your first home is exciting—but it’s also a major financial decision. So how can you tell if you’re truly ready to take that leap into homeownership? Whether you’re confident or still unsure, these four signs are solid indicators that you’re on the right path: 1. You’ve Got Your Down Payment and Closing Costs in Place To purchase a home in Canada, you’ll need at least 5% of the purchase price as a down payment. In addition, plan for around 1.5% to 2% of the home’s value to cover closing costs like legal fees, insurance, and adjustments. If you’ve managed to save this on your own, that’s a great sign of financial discipline. If you're receiving help from a family member through a gifted down payment , that works too—as long as the paperwork is in order. Either way, having these funds ready shows you’re prepared for the upfront costs of homeownership. 2. Your Credit Profile Tells a Good Story Lenders want to know how you manage debt. Before they approve you for a mortgage, they’ll review your credit history. What they typically like to see: At least two active credit accounts (trade lines) , like a credit card or loan Each with a minimum limit of $2,000 Open and active for at least 2 years Even if your credit isn’t perfect, don’t panic. There may still be options, such as using a co-signer or working on a credit improvement plan with a mortgage expert. 3. Your Income Can Support Homeownership—Comfortably A steady income is essential, but not all income is treated equally. If you’re full-time and past probation , you’re in a strong position. If you’re self-employed, on contract, or rely on variable income like tips or commissions, you’ll generally need a two-year history to qualify. A general rule: housing costs (mortgage, taxes, utilities) should stay under 35% of your gross monthly income . That leaves plenty of room for other living expenses, savings, and—yes—some fun too. 4. You’ve Talked to a Mortgage Professional Let’s be real—there’s a lot of info out there about buying a home. Google searches and TikToks can only take you so far. If you're serious about buying, speaking with a mortgage professional is the most effective next step. Why? Because you'll: Get pre-approved (and know what price range you're working with) Understand your loan options and the qualification process Build a game plan that suits your timeline and financial goals The Bottom Line: Being “ready” to buy a home isn’t just about how much you want it—it’s about being financially prepared, credit-ready, and backed by expert advice. If you’re thinking about homeownership, let’s chat. I’d love to help you understand your options, crunch the numbers, and build a plan that gets you confidently across the finish line—keys in hand.

Your Guide To The A First Home Savings Account (FHSA)

By Shawn Johnson • September 3, 2025
Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think.