Why Do Underwriters Question Irregular Deposits?

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Why Do Underwriters Question Irregular Deposits?

This BLOG On Why Do Underwriters Question Irregular Deposits Was UPDATED On September 21st, 2018 And Written By Dale Elenteny of Gustan Cho Associates 

One of the most important things that mortgage underwriters will request to start the mortgage application and approval process is 60 days of bank statements. Lenders will also require all other asset information such as investment accounts, and retirement accounts that borrowers intend in using for down payment and closing costs.

  • Part of the reason that mortgage underwriters ask for bank statements is to make sure that all funds are sourced
  • Underwriters needs to verify borrowers has enough funds to cover the down payment and closing costs
  • Underwriters will carefully review and scrutinize 60 days bank statements and look especially for irregular deposits and overdrafts 

What Are Irregular Deposits?

Irregular deposits are money that is out of the ordinary.

  • All deposits in a bank account needs to be sourced
  • For example, if borrower makes $1,000 per week
  • Borrower makes $1,000 every Friday
  • The payroll is sourced since it is the payroll check
  • The source is the mortgage applicant’s weekly pay check by employer
  • However, if there is a deposit for $2,560 one month and another deposit for $4,345 the following month and borrower is planning to use both of these irregular deposits as the down payment and closing costs for his home purchase, then the mortgage underwriter needs to see where those funds came from
  • If those deposits were cash from a sale of personal belongings from a garage sale, those funds can be used if it is documented
  • Cannot be used if it is not documented
  • Documented means that it needs the following:
    • bill of sale
    • copy of check
    • deposit slip
    • updated bank statement after deposit
  • Underwriters need to verify borrowers have enough funds for the down payment and closing costs
  • However, if those two irregular deposits came from tax return refunds from the IRS, then a copy of the check as well as the deposit slip needs to be provided to source the irregular deposit

If the two irregular deposits were from a sale of a high ticket item such as a vehicle, then it can be used by providing lender with the following:

  •  copy of the check
  • copy of title
  • vehicle title transfe
  • bill of sale
  • deposit slip
  • updated bank statement after deposit

60 Days Of Bank Statements

Mortgage lenders only require 60 days of bank statements. Irregular deposits are reviewed in 2 months bank statements:

  • Mortgage lenders do not care about irregular deposits that have been deposited in bank account that has been seasoned longer than 60 days
  • If borrowers has mattress money ( Cash ) and cannot source the funds, then the only alternative to document this cash is to deposit it to their bank account and let it season for 60 days
  • This way there is no questions asked and sixty days later
  • The funds will already be in their bank account without any irregular deposits after 60 days

Main Reason Why Mortgage Underwriters Are Looking For Irregular Deposits

There are a few reasons why mortgage underwriters ask to see 60 days of bank statements and look for irregular deposits.  Mortgage lending guidelines require borrowers come up with the mandatory down payment and closing costs.  The down payment can be gifted for FHA loan programs.  Mortgage lenders want to see that the down payment was saved by borrowers.  Mortgage underwriters do not want to see that the irregular deposits came from another loan or credit that is not reflected on the credit report.  By taking out another loan, it will affect the mortgage loan applicant’s debt to income ratios.  This is the main reason why mortgage underwriters need to see the source of any irregular deposit. If the funds cannot be sourced, then those funds cannot be used in qualifying the mortgage loan applicant.

Related> The purpose for mortgage underwriting analysis

Related> Bank statements

Related> Bank statements in the mortgage approval process

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