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

Smart Steps to Get Your Home Market-Ready

By Lee Welbanks • July 29, 2026
Thinking About Selling Your Home? Start With These 3 Key Questions Selling your home is a major move—emotionally, financially, and logistically. Whether you're upsizing, downsizing, relocating, or just ready for a change, there are a few essential questions you should have answers to before you list that "For Sale" sign. 1. How Will I Get My Home Sale-Ready? Before your property hits the market, you’ll want to make sure it puts its best foot forward. That starts with understanding its current market value—and ends with a plan to maximize its appeal. A real estate professional can walk you through what similar homes in your area have sold for and help tailor a prep plan that aligns with current market conditions. Here are some things you might want to consider: Decluttering and removing personal items Minor touch-ups or repairs Fresh paint inside (and maybe outside too) Updated lighting or fixtures Professional staging Landscaping or exterior cleanup High-quality photos and possibly a virtual tour These aren’t must-dos, but smart investments here can often translate to a higher sale price and faster sale. 2. What Will It Actually Cost to Sell? It’s easy to look at the selling price and subtract your mortgage balance—but the real math is more nuanced. Here's a breakdown of the typical costs involved in selling a home: Real estate agent commissions (plus GST/HST) Legal fees Mortgage discharge fees (and possibly a penalty) Utility and property tax adjustments Moving expenses and/or storage costs That mortgage penalty can be especially tricky—it can sometimes be thousands of dollars, depending on your lender and how much time is left in your term. Not sure what it might cost you? I can help you estimate it. 3. What’s My Plan After the Sale? Knowing your next step is just as important as selling your current home. If you're buying again, don’t assume you’ll automatically qualify for a new mortgage just because you’ve had one before. Lending rules change, and so might your financial situation. Before you sell, talk to a mortgage professional to find out what you’re pre-approved for and what options are available. If you're planning to rent or relocate temporarily, think about timelines, storage, and transition costs. Clarity and preparation go a long way. The best way to reduce stress and make confident decisions is to work with professionals you trust—and ask all the questions you need. If you’re thinking about selling and want help mapping out your next steps, I’d be happy to chat anytime. Let’s make a smart plan, together.
Four coworkers in a bright office meeting around a laptop and papers, discussing work at a wooden table

Debt Cosolidation Strategy

By Lee Welbanks • July 22, 2026
How to Get Out of Debt Faster Debt has a way of quickly spiralling out of control, particularly if you face one of life’s most common financial obstacles – such as job loss/wage reduction, separation/divorce or illness/death. But, fortunately, there are debt-reduction strategies available to get you out of debt quicker and remain debt free! One popular debt-reduction strategy tackles your smallest debt balances first before moving up the chain to pay off larger ones. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment. Here’s how it works in bite-sized steps: Record your debts from smallest to largest regardless of interest rate Make minimum payments on all your debts except the smallest one Pay as much as possible on your smallest debt Repeat until each debt is paid in full Focus on outstanding balances, not interest rates If your largest debt has the largest interest rate, it’s going to be a long time before you even see a dent in that crazy balance of yours. But when you stick to the smallest balance plan, you’re going to feel a true sense of accomplishment as you pay off that debt super quick. That excitement is what’s going to motivate you to keep working hard until you’re completely out of debt. This debt strategy is effective because it’s all about changing your behaviour. And once you see positive results, you’re more encouraged to stay the course until you’re out of debt. Example Let’s say you have four different debts: $500 dental bill – $50 payment $2,500 credit card debt – $63 payment $7,000 car loan – $135 payment $10,000 student loan – $96 payment Using this debt strategy, you make minimum payments on everything except the $500 dental bill. Since you’re paying $550 a month on the dental bill (the $50 minimum payment plus the extra $500), that debt is completely gone in one month. Now you can take the freed-up $550 and attack your credit card debt, paying a total of $613 ($550 plus the $63 minimum payment). In about four months, you’ll be waving goodbye to that credit card debt too! Next, you’ll tackle the car loan to the tune of $748 a month ($613 plus $135). In 10 months, you’ll be driving a vehicle you actually own. By the time you reach that dreaded student loan (your biggest debt), you can put $844 a month towards it. That means you’ll be making your final payment in just 12 months. With all your hard work and sacrifice, throwing extra money into your debt strategy and staying focused on the goal, you’ll have paid off $20,000 in just 27 months! Wondering if this is the right debt strategy for you? I’m always here to help. Answers are a call or email away.