Your assets are the funds you are going to use to purchase the home, and what funds are being used for reserves if required. This is one of the most commonly misunderstood parts of the loan process and the one part that causes the most issues in underwriting. Outside of some VA loans, nearly every other purchase loan will always require proof of assets to show sufficient funds to close. That means we need to show 60 days of bank statements with an ending balance showing enough funds to take care of your down payment, closing costs and prepaids. Cash is never acceptable for any part of the mortgage process! If you are someone who does not believe in banks, think of the irony in trying to get a loan from one. 🙂 Cash is considered “mattress money” and cannot be used. This is to prevent mortgage fraud, money laundering, and terrorism. Stick it in a bank account immediately and let it “season” for a couple months. If your bank account shows a large deposit that is not from your work, it will have to be sourced. If we cannot source it, it cannot be used.
Gift funds from a relative can be used, but we have to source the funds from their account and show those funds debited or transferred from their account into yours. If they write a check, we’ll need a copy of the check. I can explain the gift funds process in more detail when we talk if need be. There are a couple options to make it less invasive for the gifter, but it’s all situational dependent.
Many people think they need to put down 20% of the sales price to get a loan, but that is not true unless you are trying to avoid mortgage insurance. For Conventional loans you typically only need a minimum of 5% down (although we can see if you qualify for a 3% down program), for FHA you need a minimum down payment of 3.5%, USDA requires no down payment, and VA requires no down payment. So if you are getting a $170,000 loan via FHA financing, your down payment would be $5,950. If you bought a $170,000 home with a conventional loan, your minimum down payment will be around $8,500. We would then add in the closing costs and prepaids to see how much cash (in the bank) you would need to close the loan. We would subtract from this amount any seller concessions towards closing costs and prepaids, and any lender credits you may get to determine the final number. It is possible to have zero out of pocket closing costs and prepaids if the seller and the lender are contributing enough; however, you cannot get around your down payment amount. This is your “skin in the game” and the lending institutions require that come from you so that your money is invested in the house. This helps to keep loan default rates as low as possible. The only exception to this is if you are receiving gift funds from a relative.
In order to verify assets I will need the following:
- 60 days of bank statements from all bank accounts you will be using to show sufficient funds to close
- A copy of the earnest money deposit check or money order
- 60 days of statements from any investment or IRA accounts being used for reserves
- If you consolidated funds from multiple accounts into one account within the last 60 days, I will need 60 days of bank statements from each account to trace the consolidated funds
This is the current “look back” period lenders require to combat money laundering and mortgage fraud. Any large deposits that cannot be sourced to their origin, i.e., large cash deposits, cannot be used. They need a full 60 days of bank statements. ALL pages. Even if a page is “intentionally left blank,” we need that one as well.
True. Trust me, I get it. But cash is considered “mattress money” and simply cannot be used in accordance with current regulations and lending laws. I had a client who had $500,000 cash he had been saving up and couldn’t use a dime of it. To say he was mad is an understatement. Stick it in a bank today and let it season for the 60 day look back period.
You absolutely can, but do it at the very beginning of the loan process and supply 60 days of bank statements from ALL of the accounts so we can trace the transfers from and into your various accounts. The lender will verify available funds from each bank account and note it on the closing instructions that funds are to come from X, Y and Z accounts not to exceed the verified amount per account. If you decide at the last minute to consolidate your money, you will severely jeopardize your closing by providing more funds than are verified. Closing will literally stop and we will have to produce bank statements showing the transfer of funds and the underwriter has to review them again. BIG problem. Do NOT move funds around at the last minute. Please. And I would prefer you don’t move them around at all… but I understand if you do.
When you buy a home, most of the time the seller wants earnest money to show you are serious about your offer and to compensate them for the time they have the home off the market in case you don’t close for some reason. This EMD check takes a while to get cashed or deposited into an escrow account, but once the seller accepts the offer and we have a signed contract, we have everything we need to start processing your loan so we submit everything to include the 60 days of bank statements. However, the lender will want to see the EMD debited from your account in order to verify sufficient funds to close once that amount is debited. This means that as soon as the EMD shows on your account, we will either need updated bank statements depending on where in the month we are and when your bank generates monthly statements, or we will need a “transaction history” that shows all activity from the end of the last bank statement we turned in until the EMD is debited from your account.