The purpose of the rule
Lenders and mortgage insurers want to confirm your down payment is genuinely your own money and not an undisclosed loan that could affect your ability to repay the mortgage. Anti-money laundering rules also play a role in why this documentation is required.
What counts as an unexplained deposit
Any large or unusual deposit that doesn't match your regular income pattern can trigger a request for an explanation. This includes cash deposits, e-transfers from people other than immediate family, or a sudden lump sum with no clear paper trail.
- Large cash deposits often need a written explanation
- Transfers between your own accounts should be easy to trace
- Selling investments may require statements showing the transaction
How to prepare your accounts early
If you know you'll be applying for a mortgage in the next few months, try to consolidate your savings into one account and avoid moving money around unnecessarily. Keep records of anything unusual, like a bonus, tax refund, or gift, so you can explain it quickly if asked.
Gifts and non-traditional sources
Down payment gifts from immediate family are common and generally accepted with a signed gift letter. If your funds come from selling a car, cashing out an RRSP, or another one-time source, keep the paperwork so you can show the transaction clearly.
Frequently asked questions
- What if I just received an inheritance?
- You can usually use inheritance funds as a down payment, but you'll need documentation showing the source, such as an estate settlement letter.
- Does the 90 day rule apply to every lender?
- It's a common standard across most Canadian lenders and mortgage insurers, though the exact wording can vary slightly by institution.
- Can I use borrowed money for a down payment?
- Some programs allow borrowed down payments in specific circumstances, but this needs to be disclosed upfront since it affects your debt ratios.