Cash To Close And Seasoned Funds For Closing Mortgage Guidelines

This Article Is About Cash To Close And Seasoned Funds For Closing Mortgage Guidelines

Many borrowers have a hard time understanding cash to close for closing.

  • Most folks and the regular traditional business world would think that cash is definitely king when it come to purchasing any consumer goods and even high ticket items including a home
  • Unfortunately, undocumented funds and cash on hand are not allowed when qualifying for a mortgage loan
  • Seasoned Funds for closing all need to be documented
  • Loan officers and mortgage processors need to make sure that the borrower has enough cash to close for closing in the earlier stages of the mortgage process
  • Cannot wait until the last minute, especially if the borrower does not have any family members that can gift them the money

In this article, we will cover cash to close as well as seasoned funds required for a home closing.

How Lenders Source And Determine Cash To Close And Seasoned Funds For Closing

How Lenders Source Funds

As mentioned earlier, all funds in the mortgage transaction processed will require documentation as of where the funds came from.

For example, here is a case scenario:

  • if the borrower is getting a $1,000 direct deposit every other week from his employer
  • These will be considered verified funds
  • these funds can be used for cash to close and seasoned funds for closing

However, if a borrower were to deposit cash from his side job, those funds cannot be used for cash to close and seasoned funds for closing:

  • Cash in the mortgage business cannot be used as verified funds
  • Any irregular deposits that are over $100 dollars needs to be explained and the source of the deposit needs to be provided to the mortgage underwriter

For example, here is a case scenario:

  • if there as an irregular deposit of $2,000
  • the underwriter will need to know where that money came from
  • If it came from an income tax refund, then documentation from the IRS and deposit slip

A letter of explanation needs to be provided in order for that $2,000 deposit to be able to be used for cash to close and seasoned funds for closing.

How Long Do Funds Need To Be Sourced?

There are instances where borrowers cannot source their deposits and this creates a big problem.

  • The good news is that borrowers who have substantial cash deposits and cannot be sourced and cannot be used for cash to close and seasoned funds for closing can wait 60 days from the date of their last unsourced deposit and underwriters will not question it
  • Lenders require 60 days of bank statements and only the transactions from the 60 days of their bank statements are scrutinized
  • Anything prior to the 60 days is not questioned and are considered verified sourced funds and can be used for cash to close and seasoned funds for closing
  • There are still folks who do not trust banks and have cash in a safe deposit box at their local bank or cash on hand in their homes
  • Unfortunately, cash cannot be used as verified sourced funds

So the only solution is to make the cash deposit in their bank account and wait 60 days for the funds to seasoned in order for those funds to be counted as verified funds.

What Are Large Deposits?

What Are Large Deposits?

Under the view of lenders, large deposits are deposits that are equal to or greater than 10% of the monthly gross household income of the borrower.

  • Large deposits need to be sourced to be able to be used for cash to close and seasoned funds for closing
  • Those who are planning on buying a home in the near future, deposit any and all unsourced funds and cash as soon as possible and let those funds season 60 days in the bank account

So sourcing those deposits will not become an issue when you are ready to apply for a mortgage loan.

Gift Funds As Cash To Close And Seasoned Funds For Closing

Gift Funds can be used for cash to close and seasoned funds for closing.

  • The donor needs to sign a gift letter provided by the lender which states that the funds gifted to the home buyers is a gift and not a loan and that the gift funds will not be paid back to the donor
  • The borrower needs to make a copy of the check received by the donor and provide copies of the deposit slip as well as an updated bank statement after the deposit of the check from the donor of the gift funds
  • The donor needs to provide 30 days of bank statements showing that the gift funds have been seasoned for at least 30 days
  • It needs to show gifted funds being withdrawn from their account and deposited to the home buyer’s bank account

Gift Funds are not viewed favorably by lenders as well as the Automated Underwriting Systems. Many times, DU/LP AUS will get you a referred/eligible per DU FINDINGS and LP FINDINGS with gift funds for the down payment. However, if gift funds are removed and say it is the borrower’s own funds, it will render an approve/eligible. Gift Funds can be used for the down payment and closing costs. Gift Funds cannot be used for reserves. Reserves need to be the borrower’s own funds.

9 Comments
  1. nino dass says

    i have cash under pillow i need to bring it out for buy home whats the right way to add deposit in bank to make it home buyer or loan officer.

    1. Gustan Cho, NMLS 873293 says

      Deposit it in a bank account. Once it has been seasoned for two months, it becomes qualified assets and you can use it towards the down payment and closing costs for your home purchase.

  2. Allem says

    I borrowed money to consolidate my credit cards and personal loans. After paying them all off, I had $20,000 from the loan left over in my savings account. it has been there for 5 months, untouched. Will it be considered seasoned and secured or will it be questioned as I have the loan I am paying off. My credit score is in the very high 700’s and even with a mortgage my debt ratio will be in the low to mid 30% range.

    1. Gustan Cho, NMLS 873293 says

      As long as you have the funds were in your bank account for at least sixty days, it is considered seasoned.

  3. Allen says

    Thank you. I also won’t have to prove where it came from? Your help is appreciated.

    1. Gustan Cho, NMLS 873293 says

      Correct. Lenders only want to see 60 days of bank statements. It is just the irregular and/or large deposits that are questioned and need to be sourced. Deposits prior to that does not matter. For example, if a homebuyer has tons of unsourced cash that need to be used for the down payment on a home purchase, they need to deposit the cash in the bank account and wait sixty days for it to self source. Therefore, you have absolutely nothing to worry about.

  4. Allen says

    I appreciate your help–just concerned that the loan is also on my credit report and I wonder if they will ask what was the personal loan for.

  5. Max says

    This is excellent, easy to follow information. Most explanations on this subject are more confusing than clarifying.

    I am like the other commenter, hoping the loan I took out months ago is not questioned to be part of my down payment. I have 90 days of bank statements with the balance in my bank account and the loan is current with my debt ratios very low.

    1. Gustan Cho, NMLS 873293 says

      You only need sixty days of bank statements.

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