Providing proper asset documentation and the actual source of the funds is a critical element of the loan closing process.
There’s nothing worse in a real estate purchase than making it all the way through the hoops and hurdles just to have a loan denied after the final documents have been signed due to the borrower using the wrong checking account for the down payment.
Seasoning of the down payment money is just as important as the source, which is why underwriters typically require at least two months bank/asset statements in the initial mortgage approval process.
Acceptable Sources Of Down Payment Include:
- Bank Accounts – Both Checking and Savings Accounts
- Investment Accounts – i.e. Money Market, Mutual Funds, and IRA’s
- Retirement Funds – Most 401k programs allow you to borrow against your vested balance in your retirement account for purpose of buying a home
- Life Insurance – Cash value and face amount
- Gifts – Gifts from family members, employers, and non-profit groups, like your church, are all acceptable sources of a gift
- Inheritance / Trust Funds
- Government Grants/Down Payment Assistance (DPA) – Many state, county, and city agencies offer special down payment assistance programs – qualifications vary from mortgage approval
It is extremely important to make sure your loan officer is aware of the exact source of your down payment as early in the process as possible so that all necessary questions, documentation, and explanations can be reviewed/approved by an underwriter.
A good rule-of-thumb to remember is that whatever funds you’re using as a down payment have to be pre-approved by an underwriter at the beginning of the mortgage approval process.
Basically, if you accidentally forget to deposit money in your checking account on the way to the closing appointment, it is not acceptable to get a cashier’s check from a friend’s account until you have a chance to pay them back later.
Frequently Asked Questions:
Q: What if I don’t have a bank account and cannot properly source my funds to close?
Cash on hand is an acceptable source of funds for some loan programs. It is best to make sure you bring that detail up at during the pre-approval stage.
Q: Can I use a bonus from my employer for my down payment?
Yes, but generally this needs to be a bonus you regularly receive. If not, it would be considered a gift.
Q: Can I borrow the money from a friend?
No. Unfortunately, any money that needs to be repaid is typically an unacceptable source of funds.