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Author: rebeccadeeded-ca

Understanding the Statement of Adjustments and Trust Ledger

The Most Important Documents in your Closing – Statement of Adjustments and Trust Ledger Statement.

When you’re buying or selling a home, you will likely encounter two important documents called a Statement of Adjustments and a Trust Ledger Statement.  

These two documents are the two that get the most attention from the buyer or seller, and are incredibly important because they help you make sense of the all costs and expenses that are associated with buying or selling a home. 

To ensure that you manage your budgets and have a smooth closing, understanding your statement of adjustment and trust ledger are vital. They allow you to easily see the breakdown of all expenses and know decisively how much you will owe at the end of the day if you’re the buyer, or how much you should expect to receive if you’re the seller. 

The way these documents are formatted is more like an accounting statement.   We know not everyone has an accounting degree, so follow along and you’ll be able to understand these statement in no-time.

What is a Statement of Adjustment?

A statement of adjustment is very similar to your personal bank statement, however, instead of listing your personal transactions, it is a record of your Real Estate or Mortgage transaction. Statements of adjustment are used by both buyers and sellers to know exactly the proceeds they receive, or how much they owe to complete the transaction. 

Essentially, the statement of adjustment will list the purchase price for the home followed by any additional costs that need to be added, finally subtracting any deposits already made to determine what will be the total cost at the time of closing.

Example of a Statement of Adjustments

Like an accounting statement, when creating a statement of adjustments, costs paid to the seller go under “credit seller“. Whereas costs paid by the buyer go under the “credit buyer” column. 

Here’s an example for a residential property sold in Ontario.

  • The sale price is $500,000
  • There was a deposit of $50,000 made by the buyer
  • The seller pre-paid utilities at a cost of $500, however they only occupied the house for 150 days and need to be reimbursed for the half, therefore $250 will be credited.

If you’re reading this correctly, the buyer will owe the seller $450,250 on closing, after accounting for the deposit and utilities adjustment.

What is a Trust Ledger?

Similar to the statement of adjustment, both the buyer and seller’s lawyers will create a trust ledger, this time with the purpose of showing how the money will be allocated after the closing.  If you are refinancing your mortgage, your lawyer will also prepare a trust ledger statement with the details of mortgage changes.   

A Trust Ledger Statement is prepared for both the buyer and seller to show all remaining expenses for both parties. In the case of the buyer, after completing the statement of adjustments, the full amount payable to the seller is then moved over to the Trust Ledger Statement.

The Trust Ledger Statement shows all of the money involved in the transaction on closing day, but also includes other costs such as legal fees and disbursements, land transfer tax, title insurance, etc. 

For sellers, the closing costs they have are subtracted from the amount owed to them by their buyer to determine the total amount they will receive after closing (after a mortgage is paid off, for example).

Example of Trust Ledgers

In contrast to the statement of adjustment, a trust ledger will vary between a buyer and seller because they each will incur different costs after closing. 

The Trust Ledger Statement shows the remaining expenses for both the buyer and seller on closing day, including legal fees and disbursements, realtor fees, land transfer tax, and so on.

We will create an example trust ledger for the buyer in the previous example assuming he has incurred the following closing fees.

  • Legal fees – $4,800
  • Home inspection fees – $1,200
  • Land transfer tax – $12,000

The seller’s trust ledger will similarly start by bringing the price paid and subtract any associated closing costs to determine the total earnings from the sale for the seller. 

We will create an example of the seller’s ledger assuming the seller pays the below closing costs. 

  • Legal Fees – $2,200
  • Real Estate Commission – $25,000

As your purchase, sale or refinance transaction moves towards closing, you’ll receive copies of the Statement of Adjustments and Trust Ledger to review for accuracy.   It is important that you take the time to understand, review and ask any questions.

If this looks overwhelming to you, rest assured that the Deeded team is here to make things easier and simpler. We walk you through all your documents and ensure that you understand every aspect of your transaction.

Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

Gifting a Downpayment: What You Need to Know

With rapidly increasing home prices greatly outpacing growth in salaries and incomes, it is becoming very difficult for first-time buyers to save for a downpayment so they can get into the housing market.

As a result, it is now becoming more common for parents to assist their children gifting money towards a downpayment for a home.

Gifting money towards a downpayment means that you are not obligated to repay the person gifting you the money. In most cases, the parents who are gifting money towards the down payment will not own an interest in the property either.

In Canada, you can typically buy your first home by paying 5% down. However, it is advisable to put in 20% down. Because, when you pay less than 20%, you are obliged to purchase mortgage insurance, which increases your overall monthly payments.

If you’re one of the lucky ones to receive a cash gift towards your downpayment, the buck doesn’t stop there. Your lender will typically ask for something called a gift letter.

A gift letter may be required by your lender to show and prove that you are indeed getting a part or your entire down payment as a gift and from who. It’s an important distinction that proves that you do not have any other debt obligations when applying for a mortgage. 

Key Takeaways:

  • • A gift letter is a document used by mortgage lenders to ensure that monetary assistance given by family members to help you cover a mortgage down payment will not need to be paid back.
  • • Mortgage Gifts may only be made by direct family members and are non-taxable in Canada.
  • • While gift letters are enough to help you cover your down payment, mortgage lenders require far more proof before they certify your loan.

What is A Gift Letter?

A mortgage gift letter is a document completed by your benefactor (the person or people giving you the money) that declares that a one-time monetary contribution they’ve made to you has been given as a gift to be used for the down payment of the mortgage you are applying for. 

The distinction in a gift letter that the money given, is a gift, is important as your mortgage lender needs to confirm that you will be under no obligation to pay the money back. 

Your mortgage lender wants to know that you are financially capable to make your monthly mortgage payments to them. If they cannot confirm that the money you receive from your benefactor is a gift, they will see it as added debt that will increase your financial stress and make it more difficult to pay your mortgage. Therefore, there is a possibility that they may not approve you for the mortgage.

What Does a Gift Letter Look Like?

Many financial institutions will have templates or examples of gift letters that you may use, however if you choose to write your own, make sure your gift letter includes:

  • • The name of the mortgage borrower.
  • • The donor’s name, address, and phone number.
  • • The donor’s relationship to the borrower.
  • • How much is being gifted and when it was gifted.
  • • A statement saying that the money is a gift and that it is not to be paid back
  • • The property’s address.

Will a Gift Be Taxed?

Unlike the United States, Canadians don’t have to fear a “gift tax”. You can be gifted any amount of money at any time with no tax implications.

Gifting a downpayment must be made by a member of your immediate family. That includes parents, siblings and grandparents. In rare circumstances, individuals with special relationships (such as godparents or close family friends) may request permission from your lender to provide a mortgage gift. 

The amount of your mortgage down payment that may be covered by mortgage gifts can vary from lender to lender.

It’s important to remember that although you may receive help from family to cover your down payment, that may not be enough to ensure you are approved for a mortgage. You will need to ensure that you meet criteria in terms of credit score, income and much more.

As helpful as gift letters can be, there are many rules and criteria you need to review before you can be approved. If this looks overwhelming to you, rest assured that the Deeded team is here to help however we can.

Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

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