Why Your Down Payment Source Matters More Than You Think
If you're planning to purchase a property, you might assume that as long as you have the down payment, you're good to go. But to your lender, where that money comes from matters — a lot. Here's why:
🔍 1. Anti-Money Laundering Regulations
Lenders are legally required to verify the source of all down payments to prevent money laundering. This means they must be able to trace the origin of your funds, no exceptions.
✅ Acceptable sources include:
Personal savings
Gifted funds from an immediate family member
Borrowed funds through insured programs like FlexDown
💰 2. A Reflection of Financial Health
Your down payment also serves as a key indicator of your financial stability. If it’s coming from your own savings, it shows the lender that you’ve demonstrated discipline, steady income, and an ability to manage your finances — all green flags that suggest you’re likely to make your mortgage payments on time.
📊 3. It Determines Your Loan-to-Value Ratio (LTV)
Your down payment affects the loan-to-value ratio, which is the percentage of the property’s value you're borrowing. In Canada, lenders can finance up to 95% of the home’s value — meaning you need at least a 5% down payment.
🧮 For example:
Buying a $400,000 home? The most a lender can offer is $380,000, so you'll need to bring $20,000 (5%) to the table.
Bottom line: It’s not just that you have the down payment — it’s how you got it.
