Statement Peace: How to Nail That Pesky Down Payment Verification

You have an accepted offer on a new home, and you are beyond excited – your realtor has sent your broker the contract and other supporting documents, and you’ve already provided paystubs, T4s and all that jazz, so why is your broker now bothering you for bank statements?

This is possibly one of the most misunderstood parts of the mortgage approval process – the down payment verification step and I’ve had clients say, “you can see I have the money, so what’s the big deal?  Why does the bank even care where the money came from?”

I can totally appreciate how it may feel intrusive (honestly I don’t love the idea of the bank seeing how many times I visited Winners last month either) but it’s actually a legislative requirement that financial institutions have to fulfill.  Some lenders ask for 30 days but most want 90 days so be prepared to provide a 3-month history (or potentially even longer as lenders can request additional statements if something about the transaction patterns doesn’t add up).

There are 2 forces at work here:  The Federal Government’s Guidelines for Sound Residential Mortgage Underwriting Practices and Procedures (often referred to as B20) and Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).  These are requirements laid out for financial institutions to ensure that due diligence is being applied to all mortgage applications in an effort to protect both our country and our economy.

The reality is, that $5000 you deposited to your account last week was more likely from Grandma than from any ‘Queen of the South’ style cartel you’ve been running on the side, but rules are rules, and they are put in place to ensure that institutions aren’t providing financing for activities funded by proceeds of crime.

Yes, your broker and the bank both probably already assume that you’re not running with the likes of Lance from Pulp Fiction and the request isn’t to exhaust or frustrate you – it simply comes down to condition fulfillment and meeting the expectations of the lender, and beyond that the expectations of the financial regulators.

A few tips to follow when putting together your down payment verification:

·         Statements must include all pages (i.e., if March’s statement is 2 pages, then send both sheets)

·         Statements cannot be ‘stale-dated’ and must be current (i.e., you started the Pre Approval process back in December of last year, but your offer went live in April and closes in June of this year – those down payment statements from way back last Oct/Nov/Dec aren’t going to fly anymore)

·         Statements/printouts must show account ownership (basically, your name and the account number need to appear together on the statement, or a homepage with your name is needed to cross reference with the account number)

·         Most banks and credit unions now offer an e-statement feature, so if you check your online banking there may already be PDFs there with everything you need

·         You may not have a monthly statement for an investment account, but statements are sent out quarterly so you can provide your broker with the most recent quarterly statement (or some Financial Advisors are able to generate a history for you)

·         Screenshots can be used in some circumstances but you’re better off to ‘print screen’ and cut and paste them before saving to a document, because sending a picture you’ve taken of your computer screen will come out blurry almost 100% of the time

·         There are free scanning apps available to download to your smart phone, and if you have an iPhone the NOTES page also has an awesome scanning function https://support.apple.com/en-ca/HT210336

·         As a last resort, your financial institution can print out histories for you in branch, but it’s usually at a cost so speak to your broker first about some of the other options that may be available

·         Blacking out things like the account number and certain transactions can cause more harm than good (remember, both your broker and bank follow strict privacy protocols and your statements won’t be shared with anyone else)

·         The ability to trace the history back to the source is vitally important (for example, if that $25k deposit was a cheque, providing a copy of the cheque may be required, if that $10k came in by electronic funds transfer and EFT receipt may need to be provided, or if that $100k that you received 10 days ago was an inheritance a copy of the will or lawyer’s disbursement will likely be asked for.)

·         To add to the above, if your down payment is coming from the sale of another property you’ll need to provide a sale agreement, or if you sold some other asset (a vehicle, motorhome, etc.) and got a wad of cash you may be asked to provide a bill of sale/paperwork to confirm.

·         If your down payment is a gift then in addition to a signed gift letter you will be asked to provide a statement history from the donor, a financial institution stamp or a current statement showing that the funds are in your possession (depending on the specific lender).

Remember:  All large deposits need to be accounted for, and every dollar of down payment and closing cost needs to be verified and approved by the lender.  That’s why if $2500 is coming from your savings, $7000 from your chequing, $6000 from your RRSP, another $1100 from your TFSA, statements are required for ALL of these accounts (which in turn is going to feel like a lot of paperwork for you).  This isn’t intended to be a make-work project for you (I promise), nor is it something your average broker relishes asking for, but it’s ultimately a hard requirement that can’t be sidestepped.

If you are sensitive about gathering multiple statements or sharing transaction history, one option might be to open a separate savings account specifically for your down payment in advance of when you plan to go house hunting and start migrating your funds into there.  That way it will be easy to identify the source of each deposit, and everything will be in one place when it comes time to pull the trigger on a purchase.

And again, we’re probably all well aware that you’re no Heisenberg or Tony Montana, but if we turn a blind eye to the damage done when we allow unidentified funds to enter our economy then as lenders and brokers we become part of the problem.  Not to mention, that in the world of real estate this kind of illicit activity can uneven the playing field by artificially drive up pricing and demand, it can impact neighbourhoods and the future value of homes, and overall can have some pretty serious fall out implications. 

So, while it might seem like a pain in the butt, by providing a clear, concise, and complete source of funds verification for your down payment you’re doing your part in the fight against money laundering in Canada while also ensuring nothing but smooth sailing ahead for your mortgage financing.

Questions?  Let’s talk.