Why Downpayment Source Matters

Lee Welbanks • January 31, 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.

Lee Welbanks

Navigating The Housing Market

By Lee Welbanks • July 16, 2025
If you’ve been thinking about buying a property, whether that be your first home, next home, forever home, or a home to retire into, the current state of the Canadian economy might have you wondering: Is this really the right time to make a move? There is certainly no shortage of doom and gloom in the news out there. The truth is, that’s a tough question to answer in the best of times. It’s nearly impossible to know for sure what’s going to happen next with the housing market in Canada. It could heat up or it could cool down. So here’s some advice. Instead of basing your buying decision entirely on external market factors, like the economy or housing market, consider looking for the answers internally. When you stop looking at the market to determine your timing to buy a home, and instead examine the personal reasons you have for wanting to buy a home, the picture can become much clearer. Here are some questions to consider. Although they are subjective, they will help bring you clarity. Ask yourself: Does buying a property now put me in a better financial position? Do I make enough money now to afford a new home and maintain my lifestyle? Do I feel confident with my current employment status? Have I saved enough money for a down payment? How long do I plan on living in this new home? Is there any scenario where I might have to sell quickly and potentially lose money? Does buying a property now move me closer to my life goals? Do I really want to buy now or am I just feeling a lot of pressure to just buy something? Am I holding back because I'm scared property prices might drop soon? There’s no doubt that buying a home can be stressful, but it doesn’t have to be. Having a plan in place is the best course of action to help you make good decisions and alleviate that stress. If you’d like to have a conversation to discuss your plans, ask some questions, and map out what buying a home looks like for you, we can address many of the unknowns together. The best place to start is to work through a mortgage pre-approval. There is no cost for this service, you’ll learn exactly what you can qualify for, and it will provide a lot of clarity about your situation. You might decide that it’s best to wait before buying, and that’s just fine. You might find that now’s a perfect time for you to buy! If you'd like to talk, please connect anytime. You’re not in this alone. We can work through everything together.

Buying a Vacation Home? Here’s What You Need to Know

By Lee Welbanks • July 15, 2025
The idea of owning a vacation home—your own cozy escape from everyday life—is a dream many Canadians share. Whether it’s a lakeside cabin, a ski chalet, or a beachside bungalow, a second property can add lifestyle value, rental income, and long-term wealth. But before you jump into vacation home ownership, it’s important to think through the details—both financial and practical. Start With Your 5- and 10-Year Plan Before you get swept away by the perfect view or your dream destination, take a step back and ask yourself: Will you use it enough to justify the cost? Are there other financial goals that take priority right now? What’s the opportunity cost of tying up your money in a second home? Owning a vacation home can be incredibly rewarding, but it should fit comfortably within your long-term financial goals—not compete with them. Financing a Vacation Property: What to Consider If you don’t plan to pay cash, then financing your vacation home will be your next major step. Mortgage rules for second properties are more complex than those for your primary residence, so here’s what to think about: 1. Do You Have Enough for a Down Payment? Depending on the type of property and how you plan to use it, down payment requirements typically range from 5% to 20%+ . Factors like whether the property is winterized, the purchase price, and its location all come into play. 2. Can You Afford the Additional Debt? Lenders will calculate your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to assess whether you can take on a second mortgage. GDS: Should not exceed 39% of your income TDS: Should not exceed 44% If you’re not sure how to calculate these, that’s where I can help! 3. Is the Property Mortgage-Eligible? Remote or non-winterized properties, or those located outside of Canada, may not qualify for traditional mortgage financing. In these cases, we may need to look at creative lending solutions . 4. Owner-Occupied or Investment Property? Whether you’ll live in the home occasionally, rent it out, or use it strictly as an investment affects what type of financing you’ll need and what your tax implications might be. Location, Location… Logistics Choosing the right vacation property is more than just finding a beautiful setting. Consider: Current and future development in the area Available municipal services (sewer, water, road maintenance) Transportation access – how easy is it to get to your vacation home in all seasons? Resale value and long-term potential Seasonal access or weather challenges What Happens When You’re Not There? Unless you plan to live there full-time, you'll need to consider: Will you rent it out for extra income? Will you hire a property manager or rely on family/friends? What’s required to maintain valid home insurance while it’s vacant? Planning ahead will protect your investment and give you peace of mind while you’re away. Not Sure Where to Start? I’ve Got You Covered. Buying a vacation home is exciting—but it can also be complicated. As a mortgage broker, I can help you: Understand your financial readiness Calculate your GDS/TDS ratios Review down payment and lending requirements Explore creative solutions like second mortgages , reverse mortgages , or alternative lenders Whether you’re just starting to dream or ready to take action, let’s build a plan that gets you one step closer to your ideal getaway. Reach out today—it would be a pleasure to work with you.