Asset Verification and Sourcing deposits for mortgage approval
By james on January 28, 2013
Getting a loan these days is incredibly INCOME driven, but an often overlooked part of the approval process is asset verification. Ignore this part at your own PERIL!
It is extremely important for the loan originator to know how much money a borrower has, and even more important to know WHERE the “funds to close” will be coming from. This means if my team and I are doing the loan for you, we need to know which account the money is coming from, what KIND of account it is, who’s name is associated with this account, and what other kinds of activity has been taking place in this account.
I have seen too often where a borrower gets promised some money from a family member, and then applies for a mortgage, using that number as the amount of money they have available. Only to find out that un-seasoned gift funds can create last minute additional documentation requirements- or worse- aren’t allowed for the loan program applied for!
Let’s also take a moment to talk about possibly the LAMEST part of getting a loan approved (an extremely dubious honor).... SOURCING DEPOSITS!
When we use regular bank statements to verify where the money is coming from in a down payment (or a principal reduction in a refinance), we open the can of worms that is the comings and goings of your financial life. We aren’t looking at (judging) how often you are getting your nails done, or dropping $7.50 at the starbucks every other day. Mortgage underwriters (ie: Fannie Mae) don’t care about how you spend your money. However, they DO care about how you GET your money. They are VERY keen to make sure any money you have to use towards a real estate transaction was NOT BORROWED from some other unverified place.
Therefore the next thing we ask for once we get our hands on your bank statements, is proof of all NON-PAYROLL deposits. We are totally fine with your paycheck going into that account every 2 weeks, but we definitely need to know where that random $3400.00 deposit came from!
Pretty much all large non-payroll deposits will create an underwriter condition asking where the money came from. The mortgage company will want to see a cancelled check showing where the money came from. If the money came from another person, you can expect to have to write a simple letter of explanation about what the money was for (repayment of a debt, or sale of goods etc.) As long as it makes sense for your financial circumstance, this isn’t a deal breaker. But many borrowers get flustered when asked to produce proof on this level. And if you got any kind of gift, even if unrelated to the transaction, you may be required to get a letter from the giver of that gift stating no repayment is expected. << Article on how to source Gift funds here >>
Fannie mae defines large deposits as any amount greater than 25% of the combined monthly income of the borrower. But be prepared to answer for anything really- its at the discretion of the underwriter to ask for whatever they want.