Important information about banking deposits and your mortgage
One of the more unusual parts of a mortgage application is that lenders ask questions about large deposits into clients bank accounts. This is usually a frustrating obstacle for buyers because they cannot understand why the lender would care about these deposits as long as the buyer has money for closing. I wrote this article to help explain the sometimes inexplicable facets of a mortgage application:
What is considered a “large deposit?”
Keep in mind a lender likely won’t ask about every deposit, just the ones seem irregular or excessively large. If you read about the documents you need for a mortgage pre-approval you will find a lender needs two months worth of bank statements, the reason for these statements is to determine you have the money available for closing. When the lender reviews these statements they are looking for large deposits that do not fit the normal flow of your income; things like large cash deposits and repetitive deductions. Typically a large or unusual deposit will exceed 50% of the applicants gross monthly income. This means a deposit of less than 50% of your gross monthly income, will likely not be questioned.
Why underwriters care about this
It may seem invasive and frustrating to you as a client, but there is a reason this is being reviewed. A large deposit could be a red flag for several reasons: Here is what to expect in underwriting
Large deposits could be a new debt or loan
If a large deposit is found it could be a new loan, or cash advance taken on a credit card that influences your monthly debts. Underwriters want to know what your debts are for qualifying purposes, and if they suspect that debt could have changed; it needs to be documented to see if you still qualify for the mortgage.
Large deposits could have strings attached to them
It’s not every month someone puts $2,000 in cash into their account, it’s something that they do when preparing for a down payment. So if there is a large cash deposit it could be a result of someone gifting you the money; which is acceptable but needs to be documented as a gift because it influences the loan file. Underwriters care if the money you’re using for the down payment is yours or a gift from someone else.
It matters where the money comes from
I have seen this frustrate many clients: an underwriter sees a large cash deposit into their account and wants to know where it came from, the source of the deposit is cash, underwriter tells us they cannot use that money because it’s unverifiable. Now the client is angry because the money is legitimate, why do they care that it’s cash?
Why the source is important:
The reason an underwriter cares about cash and where it came from is because it could affect the clients monthly debts. This could be a cash loan from a friend or family and expected to be repaid? That could be considered additional debt on your mortgage application. An
The realtor, seller or loan officer cannot give you money towards closing
It is against regulation to have the seller, realtor or loan officer give you actual cash to assist with the purchase or refinance of your home. This is because it shows a weakness in your application and these parties cannot have a vested interest in the transaction beyond their standard commissions.
How to prove the deposit
In the event you have to prove one or more of these deposits your underwriter will ask for several things, they may ask for a canceled check or deposit slip to identify the source of the money. If it’s a check from a verifiable source, chances are it can be used. It it’s cash, changes are it cannot. If it’s a larger deposit from the sale of an asset (car, guns, jewelry, real estate) you could be asked to provide proof of a sales contract, bill of sale or closing disclosure.
Conclusion
To ensure your mortgage application goes smoothly it’s important to be upfront and do some research into the types of things that can negatively impact your loan application. The first action is to always talk to a Qualified loan officer , they will be able to review your documents and tell you if anything will be a problem. The smoothest loans I’ve had the pleasure to work on have been from clients who pro-actively go through this information with me. There isn’t a reason to hide or omit information because likely it will be discovered by the underwriter.
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Justin Scott
Loan Officer
NMLS 878581
- C) 920-530-4484
- O) 920-490-8823
- F) 920-490-8967
Executive Mortgage
NMLS 271650
909 . E Walnut Street
Green Bay WI 54301
