Transcript of Video Blog:
Hi everybody. It’s Rowan Smith at the Mortgage Centre. What I wanted to address today is one of the more common confused elements with down payment. Down payment is something that’s very important with your mortgage, but proving not only that you have the money but where the money came from is also very important.
Let me provide you an example. When you go to put, say, 20 percent down on a $500,000 place, that’s $100,000. The bank is going to ask you for either 90 days of bank statements showing that money in your account, or if it’s coming from family — that they’re giving it to you — then, they can get a gift letter.
Where people get confused is they always say, “Well, maybe I’m not really going to get the money from my savings. I might be getting $20,000 from a friend and $25,000 from my brother. And oh, I’ll pay them back later, but for now they’re going to give it to me.”
That’s not really the way that it’s allowed to work. Banks want to know that the down payment does not create any outside interests in the property. When you get money from a friend or get money from a relative, if they’re loaning it to you, frankly you should have a payment on that. Even though most times you don’t, the bank will look at it as though you would.
And secondly, does that other person have an interest in your property? So while it may seem very clear that they’re not on the title, and thus, they don’t, one can argue if they’ve given you the down payment, the fact of the matter is banks don’t want to get involved in that discussion. They don’t want to be pulled into something with multiple parties and competing interests in their security, which is the home.
So you can be expected to have to provide 90 days of bank statements showing the down payment being in your name. Now if it’s not in your name, we have to have a very good story of why. It can be money that’s accumulated within those 90 days. Perhaps you’ve had a large deal close in whatever your business is and you get a large check. That’s all very legitimate.
Then, you should be able to provide invoices or contracts or something to substantiate that the money is, in fact, yours and is not being borrowed or gotten from other sources of debt — like family that are slipping you some money in the time being until you sell the property in a few years. If you have any questions with down payment because perhaps you’re getting a hard time at your bank, give me a call. It’s Rowan Smith from the Mortgage Centre.