Show Me The Money – Tracking the Down Payment and Large Deposits

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Show Me The Money – Tracking the Down Payment and Large Deposits

As real estate professionals, the amount of information that you have to impart to your buyers is staggering.  If it is a first time homebuyer or someone who has owned ten homes, people do not buy a home every day and there is so much to know.

One aspect of the loan process that we are trying to educate buyers on is the tracking of the funds for the down payment and any large deposits.   Over the last six months it seems that the tracking has taken on a life of its own.  We are touching on this topic due to recent loan applications where people are constantly transferring money from one account to another or there are large deposits that we have to explain.  Sometimes when one account is asked for, we see a large deposit from another account and that leads to getting the statement on that account which has another large deposit.   This is a part of lending these days; however, if you have clients out looking to buy, it might make it easier on them if they knew about the tracking that goes on and if there is enough time to possibly gather all funds in one place.   We mention this in an attempt to make the process easier for the buyer.

The background behind the tracking stems from rules that Fannie Mae and Freddie Mac have regarding the source of funds for the down payment.   Fannie and Freddie want to make sure that the down payment and the reserves after closing did not come from an unsecured loan.  They want to make sure that there is no additional debt that we are not counting in the debt to income ratio as the result of a loan and they want to make sure if there is a loan it is secured by an asset.

Due to these rules, we have to show that the funds for the down payment are verified in the borrower’s account.   Here are a few things we look at:

  • We ask for 2 consecutive months of bank, brokerage and retirement statements to verify the down payment and reserves after closing.  Any large deposits that are not clearly marked as payroll require that we get a copy of the check that the borrower deposited and an explanation on the deposit.
  • If the statements become stale, underwriters like to see a current statement 30 days prior to closing, we have to get a statement prior to closing and if there are large deposits on the current statement, we have to track them.
  • The down payment cannot be an unsecured loan.  If it is a gift, we need to know up front as we have to have a gift letter for the file.
  • If funds are being moved from one account to another we have to show all accounts involved in the transferring of funds – this can lead to multiple requests if the borrower has a lot of non-payroll activity on one of the accounts.  It is as if one door opens another.

This week, one lender has actually come out with a definition of “large deposits” as this has been a guessing game with some lenders asking for copies of checks as small as $50.

“Any deposit or aggregate of deposits in any one month greater than 10% of borrower’s gross monthly salary (excluding regular and consistent deposits for payroll, Social Security, retirement or other documented income).” 

Having a hint as to what a large deposit is will be helpful.

Buying a home is a very exciting and can be a stressful time.  We  want to do anything we can to prepare your buyers.

Ann Heinz
Senior Loan Officer
(303) 263-4003
License #100027008 NMLS#360599
AnnHeinzMortgageLoans.com

Mo Robinson
Senior Loan Officer
(303) 478-2136
NMLS #360601 Co MB100033009
MoRobinsonMortgageLoans.com 

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