Large Deposits

Let's talk about large deposits!

You'll probably be asked to provide bank statements in order to qualify for your mortgage loan.  The underwriter will use the statements to make sure you have the necessary funds to close the loan and those funds came from an acceptable source.

What are popular sources for down payment and closing costs?

• Money withdrawn from a checking, savings, or investment account (including retirement accounts)
• Loans from a 401(k), retirement or other asset account
• Gifts from a family member, fiance, or employer
• Secured borrowed funds (i.e., a mortgage or line of credit secured by another property)
• Government funded down payment assistance programs
• Proceeds from the sale of another property

What's (usually) not an acceptable source of funds for down payment and closing costs?

• Cash under the mattress, in a safe, or buried in a coffee can in the back yard
• Loans (other than those secured by assets or other real estate)
• Cash advances on credit cards
• Gifts from anyone other than a fiance, family member, or employer
• Money obtained from engaging in illegal activity (obviously)

So how does the underwriter know where your funds for closing originated?  They look for "large deposits" on your bank statements.

A large deposit is any deposit that isn't clearly identified as a regular source of income and that exceeds a certain amount.  The exact amount will depend on the lender, the loan type, and the gross monthly income used in qualifying.  Ask your lender what amount qualifies as a large deposit for you!

How can you use this information to make the mortgage process smoother?

• Don't deposit large sums of cash into your bank account.  We can't document where the cash originated and it's typically not an acceptable source of funds.
   
• If you need to deposit large sums of money, make sure you document every step of the way.  If you sell a car, make a copy of the title transfer, have the buyer sign a sales receipt, and request a cashier's check instead of cash.
   
• Avoid unnecessary transfers from one bank account to another.
   
• "Season" your funds.  Your lender will usually only need the previous two months' bank statements.  Large deposits that occurred more than two months ago won't require an explanation (because the lender won't know about them).

If you're concerned about large deposits or the source of funds you will use for down payment and closing costs, talk to your loan officer!  He or she can advise the best way to document your specific scenario.

Good luck out there!