What proof of funds means in a Canadian mortgage file and why lenders ask for evidence of the down payment and closing-cost money.
Proof of funds is evidence that you have the money needed for the down payment, closing costs, and other required cash contributions in the mortgage transaction.
Qualification is not only about income and debt. The lender also needs to know that the borrower can actually bring the required cash to the deal.
FCAC says lenders may ask for proof that you can pay the down payment and closing costs, and they may ask for recent financial statements from bank accounts or investments to help determine whether you have those funds.
This is why borrowers who look strong on paper can still run into trouble late in the process. If the lender cannot clearly trace the required cash, the file may slow down or stop.
A borrower says the down payment is available in a savings account and TFSA. The lender asks for recent statements to confirm the funds exist, are accessible, and are consistent with the story being presented in the file.
Proof of funds is not only about the minimum down payment. Lenders also care about closing costs and sometimes about the source of the money.
Borrowers also sometimes assume that if a family member is helping, no further explanation is needed. Gifted funds still usually need supporting documentation.
Acceptable sources, seasoning expectations, gift-letter requirements, and anti-fraud review can vary by lender and by mortgage insurer.