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Archive for the ‘Down Payment’ Category

Down Payment Gift – How to Document It – By Rowan Smith a Vancouver Mortgage Broker

Friday, April 6th, 2012

Transcript of Video Blog:

Hi everybody. It’s Rowan Smith from the Mortgage Centre here today to talk about down payment. Specifically I want to talk about gifts. A lot of times people will go to purchase a home, they will have a mortgage all in place, and then the bank will decline them because of their down payment. People will say, “What does it matter? I have the money. Why can’t I use it?” Because the bank is under an obligation to find out where those funds come from.

It’s just a matter of ensuring that the money isn’t from proceeds of crime or something else that sound fantastic and ridiculous to the average borrower but the bank, nonetheless, has an obligation to ensure that those are legitimate dollars. When you get a gift from a family member, that’s the only time it’s allowed, and it’s typically one step of family away meaning up to your parents or maybe to your grandparents or brother/sister.

Banks generally frown on things like uncle or second cousin twice removed gifting money. They certainly frown upon friends or business associates. They want to see a familial connection because it is considered a gift which means it’s non-repayable and that person that gave you that money will have to sign a letter that says there is no repayment ever required for those dollars.

If you’re looking to get a gift it’s not a problem, we just have to ensure that the people understand they are, in fact, giving you the money, will be signing to that effect, and that the funds are in your account. Those are three individual things. There are a few banks that will want to call and speak to the person to ensure that they’re actually giving you the money as well.

Now, are there ever times when gifts aren’t allowed? Yes. Some of the self-employed programs, stated income programs, and whatnot that exist don’t allow for the full amount of the down payment or sometimes any of the down payment to be gifted. This is a very tricky and important area so if you’re looking to buy something and are self-employed and perhaps you leave a lot of money in your company for tax reasons rather than taking it all out in personal taxes then what you’ve got to do is talk to me in advance.

We can structure this and show how to demonstrate your income to the bank through the manner that they want to see. That’s one of the rules on down payment and gifting.

If you know somebody that’s having a problem because their down payment is gifted and for some reason their bank is not allowing them to do the mortgage give me a call. I can offer you free second opinion, review the scenario, and see what can be done to satisfy the requirement. From the Mortgage Centre, I’m Rowan Smith.

What is Required for Down Payment – Vancouver Mortgage Broker Rowan Smith Explains

Tuesday, March 27th, 2012

Transcript of Video Blog

Hi, everyone. It’s Rowan Smith with the Mortgage Center.

I want to talk about down payment confirmation today. I did a previous post on gifted down payment. This post will be specifically on normal down payment coming from savings. What do the banks want to see?

Well, the general rule of thumb is, they want to see 90 days of bank account history, showing the money in your name. This is just to comply with anti-money laundering rules and proceeds of crime legislation and whatnot. It’s to insure that the funds that you’re using for down payment didn’t come from any illicit source.

Now, what will they accept in those cases for 90 days of proof? Well, 90 days of bank statements is fine. Most banks will accept 90 days online printouts. The important thing is, the online printout needs to have your name on it. It has to show that that’s your account and not mine or somebody else’s.

So, if you print out your statements for 90 days, and you have all the transactions, most institutions, frustratingly, don’t have your name on it. They just have the account number. So, what do you do?

Well, one of two things. You can either give us an older statement so that we can cross-reference the number that’s on the current online ones with your name. Or, you can go into the summary screen.

Now, when you first log in, and it’ll say, “Welcome Rowan Smith. Your account.” And it’ll typically show you a summary of the various accounts that you have. It’ll also usually have the account numbers.

If we have that shot, along with your online statements, that’s generally deemed sufficient to satisfy the lender’s criteria.

Now, if it’s in RSPs, or it’s in term deposits, well, sometimes, those statements only come out annually. We can work with you in those specific circumstances. By and large, rule of thumb, 90 days history on down payment.

If you have any questions on this, give me a call. This is Rowan Smith from the Mortgage Center.

Down Payment – What is Needed For the Banks Paperwork

Sunday, February 13th, 2011

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.

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Down Payment Rules and Guidelines

Wednesday, January 5th, 2011

Transcript of Video Blog:

Hi everybody, it’s Rowan Smith with the Mortgage Centre. I want to talk today about down payment confirmation. I get a lot of questions about this. People concerned with why we’re asking for so much detail, why we’re asking for so much paperwork, so I’m going to address that today.

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Down Payment Rules – Source and Seasoning – Document Requirements

Thursday, September 16th, 2010

Transcript of Video Blog:

Hi, everyone. It’s Rowan Smith from the Mortgage Centre. I’m going to rehash some old material because I keep running into problems with it recently.

It regards the down payment. When you’re buying a home, people often think, “Well, I’ve got the down payment, so now I just have to qualify for the mortgage”. But the source of that down payment is oftentimes as important as the source of your income.

Now let me give you a couple examples of things that are acceptable. If a bank sees that you’ve recently sold a property, when you sell it you’re going to be given, from your lawyer or notary that represents you, a statement of adjustments and an order to pay.

This is a document that breaks down where all the funds went: some went to pay out your bank, some went to pay out legal costs, etc., and then the balance will be payable to you.

So let’s say you had $100,000 left over. Now you went and bought another place, and you wanted to put $100,000 down. Well, that’s perfect. It’s a very clear track record that the dollars were yours in your name. They weren’t borrowed, and they weren’t from any proceeds of crime. That’s really what the banks are going to be looking at.

Now another thing that would be acceptable would be bank statements showing the accumulation of funds over time, showing at least 90 days, and 90 days is the industry average. You’re going to be asked for this anywhere you go.

Now if you’re dealing with your own bank, they may not ask you for it, but it’s because they can actually see it on your account themselves. Rest assured, they will be looking for a 90-day history of your down payment to see where it comes from.

There are a couple of institutions out there that make exceptions depending on specific programs, but by and large, 90 days’ bank statements.

Now if you’ve got more money stored in ING and some other money at TD Canada Trust, some at CIBC, and you decide you’re going to shift it all into one account and then you go and do your mortgage application, you’ve made a lot of work for yourself because you’re going to have to get 90 days’ bank statements for all three of those accounts and for whichever account you put it into showing the funds going there.

The banks need 90 days, and they’re going to chase you to see all that flow of funds to account for your down payment.

Now you may be thinking to yourself, “Well, listen. The bank’s got the money. The down payment’s there. What do they care?” They care because the source of your down payment could create contingent liabilities that aren’t really registered on the title.

What I mean is let’s say that a husband and wife, newly married, get some money from the dad of the girl that got married, and then a year from now, everything spins out of control and they end up getting divorced.

Well, technical that money should be split down the middle and go separately. But it really was a gift from the father to the daughter, so perhaps even the husband and wife are OK with that. But it doesn’t clear up the fact that there’s this murkiness as to where those funds came from.

Another issue is if you borrow the down payment. People will come to me and say, “Well, I don’t have any savings, but I’ve got a $20,000 Visa.”

I’m like, “OK, well, you need $10,000 of down payment because you’re buying a $200, 000 home. So you need five percent.”

They say, “OK, I could take $10,000 off of there.”

I say, “Well, wait. This could present a problem. The reason it could be presenting a problem is because now you have to qualify for the mortgage and the credit card debt.”

Credit card debt they look at, and they assume you have to pay three percent of the balance. So on $10,000, that’s $300 a month that they’re looking at. Well, that reduces what you qualify for on the mortgage side by about $70,000 at today’s rates.

So is it cheaper for you to just pay a slightly higher rate and get a cash-back mortgage, or is it cheaper for you to pay the lowest possible rate and borrow some money maybe at 18 percent off your credit card?

Sure, everybody has the best of intentions and they think they can pay that portion back. But oftentimes that isn’t the case, and they end up holding that credit card debt and just rotating it and paying it and paying it on the long-term basis, which isn’t a great plan.

That’s not what the banks want to see. They don’t want to see no accumulation of the savings. They want to see savings behavior.

Again, you’re going to be asked for 90 days’ bank statements. You’re going to be asked to prove that it is your money, that it is not borrowed, and if it is borrowed, we have to factor that payment in.

If it is borrowed from some other source, we’re going to have to factor some sort of a payment in and prove that you’re going to be repaying these dollars.

So don’t think that you can just get a loan from your friend and a loan from your brother and that you’ll repay it back in the years down the road when you sell the property. That won’t really fly.

Now I can work with you to try to find the best way to do this, though. There are exceptions to some of these rules that I’ve explained.

But by and large, you have to leave that up to the professionals who work the with banks, because we know each individual bank, and we know which ones are stickier on this than others, and some that can make exceptions, and some that look at it a little more common sense.

If you’re in that situation, if you’re having trouble with a down payment, call me. It’s Rowan Smith from the Mortgage Centre.

Down Payment – What the Banks Expect

Wednesday, March 17th, 2010

Deals fall apart from time to time due to down payment not being “sourced and seasoned.” This means the borrower couldn’t prove where the money came from, and provide a reliable track record of the funds. Down payment is important to the banks! It is a vital part of the deal, and cannot be borrowed from friends and credit cards unless you qualify. How do you know if you qualify? You need to retain the services of an Accredited Mortgage Professional, and I can help you.

This video blog explains what forms down payment can take, and how it will be treated by the banks.

Transcript of Video Blog:

Hi, everybody. Rowan Smith with The Mortgage Centre. I’m going to talk today about down payment.

I was in the gym, and I was running on the treadmill, beside a couple of people who were talking about buying a home, recently. The one was lamenting to the other that the whole deal had fallen apart, simply because of their down payment. I immediately, of course, had to listen in on this conversation and eavesdrop.

The gist of it was that they were borrowing some of money from a friend, and a little bit of money from their parents. They were going to pay it all back and they had the money to pay it all back, but it wasn’t clearly documentable to them. So whoever was handling the financing just got squeamish about it and decided that they didn’t want to do it.

Now, this brings me to the point of “How important is down payment?” Well, it’s vital. It’s the capital you’re putting into the deal, the security. It’s your skin in the deal, if you will. It’s what’s going to hurt, or not going to hurt, if you walk away or get foreclosed on. Naturally, the source of that down payment is very important.

If you’re trying to borrow that money from somewhere, you can do so — so long as you can service the debt that you’re taking on as the mortgage, and the debt that you’re taking on to bring the down payment in.

A lot of people will use five percent down. They’ll borrow it from a line of credit or a credit card. They’ll say to me, “Well, here you go. Here’s the down payment.” I say, “Where did you get it from?” They go, “Well, I took it from my line of credit.” I go, “Well, uh-oh. OK, well, you didn’t. You barely qualified for the purchase, but now you don’t qualify because you’ve got another payment you have to build into it.”

The client is going, “Well, I can afford it.” Now, you might be able to afford it, but you’re not qualified for it. The bank has very specific guidelines on this fact. You’re allowed to borrow the down payment, but you have to be able to qualify for it.

You do pay a slightly higher CMHC premium as well, if you’re borrowing the down payment — whether it’s from parents or wherever else. A better move is to have your family gift you those dollars.

If your family’s trying to help you to buy a home, have them write up a gift letter. We can provide it to you. It just simply says that this is not a repayable loan. As long as that’s the truth, there’s nothing wrong with getting money gifted to you.

But gifts have to really come from people that you reasonably get a gift from. I don’t get a gift from one of my buddies. I get a gift from mom, or dad, or sister, or grandparents. We direct really a blood relation, with one step away from you — your mother, father, sister, or your grandparents, in that case. So a gift of down payment is fine.

Alternatively, you could be looking at your own savings. Now, we often have to prove where those savings have been. If you’ve been transferring money all over different accounts, it can get very confusing, so don’t do that.

What you want to do is, if you’ve got your statements, leave them in the account that they’re going to sit in. The banks are typically going to want anywhere from 30 to 90 days — usually 90 — of history of those down payment funds. Where were they? You may say to them, “Well, why does it matter where they were?” Why does the bank even care?

Well, the bank has an obligation to make sure that the funds are not coming from some illegal source, or proceeds of crime, that you didn’t get the money from a drug sale or human trafficking. I know it sounds extreme, but this is what they actually have to look for.

They have to make sure that these dollars are legitimate funds that are in a bank account that have cleared all of the fin track regulations, which involve the money laundering, and proceeds of crime, and all of that.

When we ride you about, “Hey, we need bank statements,” and, “Hey, we need proof of where you’re down payment is coming from,” first, you should expect it, and B; We, as brokers, don’t care where your down payment is coming from. We just want to get you the best mortgage we can, at the best rates, and we want to get you in there as easily as possible. We’re not here to make your life difficult.

The banks, unfortunately, have an obligation. We just have to pass that obligation on to you. If you have any questions about down payment — what’s acceptable, what’s not — give me a call.

My phone number is 604-657-6775, and I’m Rowan Smith for The Mortgage Centre.