Every down payment a Canadian lender reviews has to answer two entirely separate questions. The first is simple arithmetic: is the amount at least the minimum required for this purchase price, covered in Module 02. The second is evidentiary: can the borrower prove, with documents, where every dollar of it actually came from. A down payment that is large enough but cannot be sourced is, from a lender's perspective, not really a down payment at all yet — it is an unexplained sum of money sitting in an account.
New agents sometimes treat the source-of-funds review as a formality to get through once the amount itself is confirmed. Underwriters do not treat it that way, and for good reason: source-of-funds review exists to confirm the down payment is genuinely the borrower's own money (or a properly documented gift or loan), not undisclosed debt that would distort the borrower's real financial position, and not funds connected to something the lender has an obligation to be alert to.
When a deposit cannot be adequately explained and documented, the standard response is not to accept it on faith — it is to exclude it from the down payment calculation entirely. A borrower who has technically deposited enough money into their account but cannot produce a paper trail for a large chunk of it may find their effective, usable down payment is much smaller than their bank balance suggests, which can change the loan-to-value, the insurance category from Course 01, or whether the purchase is even viable as structured.
This is why source-of-funds review needs to start early in the relationship, not in the final week before closing. A broker who asks about the down payment's origin at intake has months to help a client assemble a clean trail; a broker who asks the week of firm offer may be discovering a serious problem with no time left to fix it.
A traditional down payment comes from sources like personal savings, the sale of an existing property, or a non-repayable gift from a relative. A non-traditional down payment comes from a borrowed source, such as an unsecured personal loan or line of credit, and carries its own eligibility rules, covered in Module 05. The paper trail is the documented history — typically bank and investment statements — proving funds have genuinely belonged to the person providing them for a meaningful period, not simply appeared the week before application.
This course also uses insurable and uninsurable as introduced in Course 01 — since the insurance category and the down payment tier are directly linked, and a change to one can change the other.
Course 01 introduced the down payment tiers as part of the broader insurance-category discussion; this course develops the down payment side in full, including the documentation practices that Course 01 only gestures at. FINTRAC's reporting obligations around large cash transactions are touched on briefly in Module 08 here but developed properly in Course 23, Compliance: FINTRAC, PIPEDA & CASL, which is the better place to learn the compliance mechanics in depth rather than picking up a partial version in this course.
A borrower has $60,000 sitting in their bank account for a down payment, but can only document a clean history for $35,000 of it. What is the most likely outcome?
The standard practice when funds cannot be adequately documented is to exclude the unsourced portion from the down payment calculation, not to accept the balance on faith simply because it is sitting in the account. This can meaningfully change the loan-to-value and the deal structure, but it is not automatically a decline — it is a documentation problem, and the file may still work with a smaller effective down payment or by tracing the remaining funds properly. Source-of-funds scrutiny applies broadly, not only to gifts, which is the point the fourth option gets wrong.
