The Importance of Good Recordkeeping
As part of your mortgage loan process, you will be asked to provide copies of your bank statements to your lender. Bank statements are reviewed for current balance to show sufficient assets for down payment and closing cost monies needed for the transaction. They are also reviewed for a pattern of over spending thus creating over drafts and insufficient funds. Another significant review is for large deposits to the account.
What is considered a large deposit?
Don't SABOTAGE your mortgage process with large bank deposits!
Any deposit that is out of the ordinary from normal deposits to your account is a large deposit. Items such as your payroll deposits, tax refunds or other regular income deposits can be verified and are not a challenge. A sum of cash that appears on a statement is not easily determined where it came from and must be documented.
Why do lenders care where your extra money came from?
Regulations and due diligence require underwriters to make sure you have not created additional debt they are not aware of that could impact your ability to repay the mortgage. Cash advances, private loans, and new credit cards are all possibilities of unexplained deposits to your accounts.
Keep good records
If you sell something of value keep proof such as a title for a car, bill of sale, copy of check. If you sell something on Ebay, print the records. Document, document, document.
Mattress Money
We have heard the term used for keeping cash at home. The simplest course is to use those funds for living expenses such as groceries, gas and other expenses and let your pay checks that are verifiable accrue in your bank accounts.
How to "Season" the Funds
Lenders generally are looking for the most recent 2 months of bank statements. If funds have been in the account for over 3 months they will not show up as large deposits.
Gifts
Gifts from family are permissible for most loan programs. Make sure you consult with your mortgage company regarding how to document a transfer of gift funds prior to making the deposit. This will help keep the process on track with ease.
Investor Overlays to Agency Guidelines
Contrary to many guidelines required by Fannie Mae, Freddie Mac and FHA, some investors (those lending the funds) require more stringent guidelines than these agencies require. Be prepared to document and explain any deposit out of the ordinary.
Make your process easy!
Communicate often with your mortgage company during the pre approval process and during the final loan approval process. If in question – "DON'T". Call your processor and loan officer to discuss any situation you may have. This may save you hours of stress and ultimately save your APPROVAL!!!
Written by Cathy Ocharzak with First Home Mortgage