How Do Mortgage Underwriters View Assets For Down Payment

This BLOG On How Do Mortgage Underwriters View Assets Was UPDATED On April 7th, 2019

Borrowers must have sufficient cash to cover the required minimum down payment on their home purchase. However, How Do Mortgage Underwriters View Assets? All assets used for the down payment and closing costs need to be verified assets. All mortgage loan programs require down payment and closing costs. However, VA Loans and USDA Loans do not require down payment. VA and USDA loans offer 100% financing. How Do Underwriters

  • Lenders want to see that down payment come from borrowers own funds
  • Gifted funds for a down payment is allowed
  • However, a gift letter needs to be completed and signed by donor stating that gift funds is not a loan and does not have to be paid back
  • The seller, any entity that may financially benefit from the transaction or any person who is reimbursed by a prohibited source may not provide funds for the required minimum down payment
  • However, under certain conditions, the minimum down payment may be provided by a Government Entity

How Do Mortgage Underwriters View Assets: Documenting Assets

All assets that are going to be used for the down payment and closing costs on home purchase needs to be documented.

  • Asset information listed on the 1003 mortgage loan application will be used to render a decision by Automated Underwriting System (AUS)
  • However, loan officer needs to be sure that the assets listed on the 1003 and entered into AUS are qualified verified assets or the AUS Findings will be null and void
  • Written Verification Of Deposit (VOD) will be requested by mortgage processor so funds will be listed as verified funds

How Do Mortgage Underwriters View Assets: Cash Reserves

Cash Reserves are normally not required by borrowers who have decent credit scores and lower debt to income ratios.

  • However, there are times where the Automated Underwriting System (AUS) may ask for cash reserves by borrowers
  • Cash Reserves, again like any other asset information, needs to be verified and documented in order for it to count

Here are cases where cash reserves may be required:

  • 2 to 4 unit properties
  • 3 to 4 unit properties requires 3 months PITI in reserves
  • Investment home loans
  • Credit scores under 620
  • High debt to income ratio borrowers
  • Excessive outstanding collections and/or charge off accounts
  • No credit tradelines on credit report

The Automated Underwriting System may request 2 months of cash reserves. Gift funds cannot be used as cash reserves and need to be borrowers own funds.

How Do Mortgage Underwriters View Assets: Seasoned Funds

If borrowers have undocumented cash, that cash cannot be used unless the following:

  • Been deposited in a bank account and seasoned for 60 days
  • If cash was from the sale of high ticket items such as auto, boat, jewelry, then a bill of sale and copy of check and deposit slip
  • All cash needs to be documented If regular smaller deposits were made in bank accounts, it needs to be determined that the accumulation of cash is reasonable
  • It needs to be based on the time period during which the funds were saved
  • The mortgage applicants income stream, spending patterns, documented monthly expenses, and the history of borrowers use of financial institutions is also evaluated

Licensed Real Estate Agent’s Commissions As Verified Funds

If the home buyer is a licensed realtor and is receiving a commission from the sale of the property that they are buying, that commission is considered verified funds and can be used for down payment and/or closing costs on the real estate transaction.

How Do Mortgage Underwriters View Assets: Earnest Money Deposit

Earnest Money Deposit is considered verified funds and is deducted from cash to close on real estate transactions. However, the source of the earnest money needs to be verified by providing 30 days of bank statements. The earnest money needs to be cleared of the borrower’s bank account.

How Do Mortgage Underwriters View Assets: Gift Funds

Gift Funds can be used as verified funds for down payment and closing costs. However, lenders and the Automated Underwriting System does not view gift funds favorably.

Gift Funds Are Allowed By The Following:

  • Family Member and/or relative
  • Parent
  • Grandparent
  • Spouse
  • Children which includes son, daughter, stepson, stepdaughter, legally adopted children, foster children, or other persons related to a borrower by blood, marriage, adoption, legal guardianship, domestic partnership, fiance, and/or fiancee
  • Borrowers credit union
  • Borrowers employer
  • Charitable group
  • Governmental agency for Down Payment Assistance

Prohibited Gift Funds

The following cannot provide gift funds to home buyers:

  • Sellers
  • Realtors
  • Home Builder
  • Associated Entity
  • Cash Gifts not acceptable


Home Buyers who have any questions on this topic please contact The Gustan Cho Team at Loan Cabin at 1-262-716-8151 or text us for faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays or email us at

Gustan Cho NMLS ID # 873293

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