Understanding Equity

Published on December 12, 2016 in Mortgage Basics, Qualification Guidelines by Eva

Traditionally, the minimum amount of down payment required to purchase a home has been 5% of the purchase price. Recent innovations in Mortgage Loan Insurance have allowed lenders to give home buyers the opportunity to cover the requisite down payment by borrowing the funds from an alternate credit source such as personal line of credit or credit card.

If you do not fit the stringent credit criteria for these programs, the 5% down payment must come from your own resources and can’t be borrowed. Here are some examples of equity sources which can be used towards your down payment.

Sale of Another Property

If equity is to come from the sale of another property, verification of this equity must be obtained. The lender will require a formal statement of outstanding balance for any existing financing on that property.

Savings

Funds from your savings account can be used towards your down payment. Most lenders will require three months of bank statements showing the accumulation of funds.

Registered Retirement Savings Plan (RRSP)

An RRSP is a personal savings plan that allows you to save for the future on a tax- sheltered basis. You will need to provide a recent statement from your financial institution that identifies you as the account holder and the current value of the account.

Gifted Down Payment

The lender will require a gift letter stating that the funds are a gift and are not repayable, and a deposit slip showing the gifted funds deposited into the borrower’s account prior to closing.

GIC, Mutual Fund or Term Deposit

GIC

A Guaranteed Investment Certificate is a secure investment that guarantees 100% of the original amount that you invested. Your investment earns interest, at either a fixed or a variable rate, or based on a pre-determined formula.

Mutual Fund

A mutual fund is a portfolio of bonds, stocks, or other investable assets like money market products, that are selected and managed by a professional on behalf of many investors.

Term Deposit

A term deposit is a cash investment held at a financial institution for an agreed interest rate over a fixed term

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Eva Poulson Mortgage Broker
BC & Alberta Mortgage Broker

Eva Poulson

When I'm not breaking the knuckles of different lenders for better mortgages for my clients - I'm kidding (or am I?) - you can usually find me visiting with friends or family, writing for this blog, or doing my best to keep from capsizing a dragon boat!

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