When I talk about documenting assets with new borrowers, I often get questions like: “why do I need to document funds for closing” or “why do I need to show where this deposit into my account came from?” It is required of borrowers to source all deposits into documented asset accounts over a certain amount or cumulative amount, depending on the loan program guidelines.
How long do I need to document assets?
Generally, we only document the last 60 days’ period of the asset statements (last two months’ bank statements). Deposits not only need to be explained, but they need to be sourced as well.
What kinds of deposits should I document?
For example, if I see a deposit into a bank account for $1,200 it is required that we have a copy of the check and proof of the source. If the funds came from a relative, it is considered gift funds and must be eligible under loan program guidelines. If it is from the sale of an asset, it is required to provide a bill of sale and copy of the check. If the funds are wired in, the source needs to be documented (letter from the company explaining why they sent funds).
Many times funds wired to an account show where they are coming from (IRS, company payroll, etc) and then we don’t need any further documentation. Sometimes the deposit can be “backed out” of the statement ending balance if the source cannot be documented (cash, for example, cannot be traced/sourced), other times that asset account can be deemed ineligible as a source for closing funds.
Bottom Line: use caution
Bottom line, if you plan to purchase a home, be careful about the money going into your account for 2 months leading up to the underwriting. Mortgage investors have strict guidelines in regards to documenting funds for closing as this is an area where fraud has frequently occurred in the past.