Failure To Provide Seasoned Funds For Home Closing
This Blog On Failure To Provide Seasoned Funds For Home Closing Was Written By Gustan Cho NMLS 873293
Failure To Provide Seasoned Funds For Home Closing is one of the most common obstacles during the mortgage process and is one of the many reasons why a clear to close is delayed on the eleventh hour. Mortgage underwriters have specific rules on whether they will allow or not allow cash on hand to be used as seasoned funds and failure to provide seasoned funds for home closing early in the mortgage process can delay the mortgage process and many times the home closing.
Mortgage lenders are required to abide with anti-money laundering rules and regulations so all funds that you present for your down payment, reserves, and closing costs needs to be sourced and verified.
Here is what lenders are required by borrowers:
- Lenders will require 60 days of bank statements when you apply for your mortgage loan.
- Any irregular or large deposits in a borrower’s bank statement in the past 60 days will need to be sourced in order for it to be used for down payment, closing costs, or reserves for a home purchase.
- Failure to provide seasoned funds for home closing during the early phases of the mortgage process will likely cause delays in the overall mortgage process and may even delay the closing.
- Large and irregular deposits needs the source of the irregular and large deposits along with a detailed letter of explanation as well as documentation of the irregular and large deposits.
What Are Examples Of Seasoned Funds And Sourced Deposits
All irregular and large deposits in a borrower’s bank statement in the past 60 days needs to be sourced. Irregular and large deposits that has been seasoned longer than 60 days does not matter and sourcing and/or letter of explanations is not required. Examples of sourced verifiable funds in the past 60 days in a bank statements are the following:
- Regular direct deposits that are payroll checks
- Direct deposits that are child support and alimony payments. Child support and alimony paperwork needs to be provided
- Any direct deposits from the IRS. Proof of the funds receivables by the IRS needs to be provided as well as the letter of explanation
- Any deposits from second jobs or part time jobs are considered sourced deposits and can be used as verifiable funds as long as documentation such as a letter of explanation, letter by the employer, proof of employment, copies of checks, and deposit slips is provided
- Any large deposits that come from a sale of goods such as a vehicle can be used as sourced deposits and verifiable funds as long as the copy of the check, copy of deposit slip, title to the vehicle, letter of explanation, and copy of the bill of sale is provided to the mortgage underwriter
- A large deposit is defined as any large and/or irregular deposit that is equal and/or greater than 10% of the borrower’s monthly household gross income
- If a borrower has undocumented cash such as mattress cash that cannot be sourced, it is recommended that they deposit those funds in their bank account way ahead of time and let those funds season in their bank account for at least sixty days because any deposits that are within 60 days, documentation and sourcing will be required and there is no way of getting away from that
Gift Funds For Down Payment And Closing Costs
Gift Funds can be used for down payment on a home purchase and closing costs but not for reserves. Gift funds can be gifted either during the mortgage process and/or closing. FHA allows that 100% of the down payment can be gifted, however, gift funds are not viewed favorable. Here are the rules with gift funds:
- FHA allows for 100% of the down payment to be gifted and Fannie Mae and Freddie Mac does allow gift funds for down payment and reserves but only a portion of the down payment can be gifted and not 100%
- The donor of the gift needs to sign a gift letter that is provided by the lender stating that the gift is only a gift and will not be paid back to the donor. 30 days of bank statement by the donor needs to be provided showing that the gift funds have been seasoned for at least 30 days
- Automated Underwriting System does not view gift funds favorably. Many times, AUS may require that down payment cannot be gifted for borrowers with lower credit scores or higher debt to income ratios or poor credit history or little to no credit tradelines
Sourced Funds In Bank Accounts With Overdrafts
Overdrafts in bank accounts is viewed extremely negatively by mortgage underwriters. Many mortgage underwriters will automatically deny a mortgage loan if the borrower has any overdrafts in their bank accounts. Many borrowers have multiple bank accounts and experienced loan officers will carefully review all bank account statements and will not use any bank accounts they do not need as long as they have one or two bank accounts with enough sourced funds for the down payment and closing costs. However, there are cases where borrowers have their sourced funds to use for the down payment and closing costs in a bank account that has multiple overdrafts. This can create a problem, however, there are solutions that a sharp loan officer can come up with. Here are potential issues with bank statements with overdrafts:
- Borrowers are required to provide 60 days bank statements
- Loan officers and/or mortgage processors will carefully review the 60 days bank statements for any irregular deposits/large deposits as well as overdrafts
- If the borrower provides 60 days of bank statements but there are no overdrafts, the loan officer should check to see if there are any year-to-date overdraft fees. If there are, this will create a red flag and the actual bank statement should not be submitted. The borrower should go to their bank and ask the teller for 60 days of bank statement printouts, all pages including blank pages, have the teller sign, date, and stamp it.
- Reason for the above is that bank statement printouts do not have year-to-date overdraft fees and actual bank statements do
- If the sourced funds are in a bank account with a bunch of bank overdrafts in the past 60 days, that bank account should not be used.
- If you have a spouse, relative, or very close friend with funds in their bank account, see if they can add you on as a joint bank account holder on their bank account. Once you have added your name, get a 60 day bank statement printout from the bank teller, have the teller date, sign, and stamp it and use that bank account printout as your bank statement. Since you are now an instant joint account hold on another bank account, have the main bank account holder get you a letter of explanation stating that you have full access to their bank account. This can possibly solve the overdraft issue you have. If your lender insists on the actual bank statement and will not accept the bank statement printout, then you may have to get gift funds or wait 60 days until your overdrafts no longer appear on your bank statements. Regardless, if you have multiple overdrafts on your bank statements, you should not turn in those bank statements unless your loan officer tells you otherwise. Some lenders like myself are very lenient with overdrafts and a detailed letter of explanation will solve the issue, while other lenders, even a $10 dollar overdraft will be a deal killer.
If you are a home buyer interested in getting qualified for a home loan and are short in cash or do not have verified funds and have more questions about seasoned funds for home closing, please contact The Gustan Cho Team at CrossCountry Mortgage at 262-878-1965. You can also text Gustan Cho for faster response on his cell at 262-716-8151 or email Gustan Cho at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays to take your calls or email inquiry and answer any questions you may have.