The Source Of Your Downpayment Matters

Ian Vowles • June 3, 2025

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.


IAN VOWLES

CANADIAN MORTGAGE EXPERT
RECENT POSTS 

What Is a Cashback Mortgage and How Does It Work?

By Ian Vowles • September 9, 2025
Cashback Mortgages: Are They Worth It? Here’s What You Need to Know If you’ve been exploring mortgage options and come across the term cashback mortgage , you might be wondering what exactly it means—and whether it’s a smart move. Let’s break it down in simple terms. What Is a Cashback Mortgage? A cashback mortgage is just like a regular mortgage—but with one extra feature: you receive a lump sum of cash when the mortgage closes . This cash is typically: A fixed amount , or A percentage of the total mortgage , usually between 1% and 7% , depending on your mortgage term and lender. The money is tax-free and paid directly to you on closing day. What Can You Use the Cashback For? There are no restrictions on how you use the funds. Here are some common uses: Covering closing costs Buying new furniture Renovations or home upgrades Paying off high-interest debt Boosting your cashflow during a tight transition Whether it’s to help you settle in or catch up financially, cashback can offer a helpful buffer— but it comes at a cost . The True Cost of a Cashback Mortgage Here’s the part many people overlook: cashback mortgages come with higher interest rates than standard mortgages. Why? Because the lender is essentially advancing you a small loan upfront—and they’re going to make that money back (and then some) through your mortgage payments. So while the upfront cash feels like a bonus, you’ll pay more in interest over time to have that convenience. Breaking Down the Numbers It’s hard to give a blanket answer about how much more you’ll pay since it depends on: Your interest rate The cashback amount The mortgage term Your payment schedule This is why it’s important to run the numbers with a mortgage professional who can help you compare this option with others based on your personal financial situation. Are You Eligible for a Cashback Mortgage? Not everyone qualifies. Cashback mortgages generally come with stricter requirements . Lenders often want to see: Excellent credit history Strong, stable income Low debt-to-income ratio If your mortgage file includes anything “outside the box”—like being self-employed or recently changing jobs—qualifying for a cashback mortgage might be tough. What If You Need to Break the Mortgage? This is one of the biggest risks with cashback mortgages. If your circumstances change and you need to break your mortgage early, you could be on the hook for: Paying back some or all of the cashback you received, and A prepayment penalty (typically the interest rate differential or 3 months’ interest—whichever is higher) That can be a very expensive combination. So if there’s even a chance you might need to sell, refinance, or move before your term is up, a cashback mortgage might not be the best fit. Should You Consider a Cashback Mortgage? Maybe—but only with eyes wide open. Cashback mortgages can be helpful in the right scenario, but they’re not free money. They’re a lending tool that benefits the lender , and the key is knowing exactly what you’re agreeing to. Final Thoughts: Talk to an Expert First Choosing the right mortgage isn’t just about the lowest rate or the biggest perk—it’s about making a choice that fits your whole financial picture. If you’re considering a cashback mortgage, or just want to explore all your options, let’s talk. As an independent mortgage professional , I can help you weigh the pros and cons of various products, so you can make a confident, informed decision. Have questions? I’d be happy to help—reach out anytime.

Deciphering the Latest Housing Affordability Initiatives in Canada

By Ian Vowles • September 9, 2025
In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.