It's my money and I do what I want to, do what I want to, do what I want to. You would cry too if it happened to you...
Obviously, the old Lesley Gore song doesn't quite do justice to the pain of not being able to obtain mortgage financing because the borrower was unable or un-willing to provide proof or tracking of the source of funds deposited into their bank accounts. One of the most difficult, frustrating and controversial topics discussed weekly with borrowers is the source of funds deposited into their bank accounts.
Trust me when I say this, "We do not want to ask for more documentation to thicken our loan file. It is a requirement and we are fulfilling the terms and conditions of the loan in order to fund your loan."
At this time, Fannie Mae, Freddie Mac, FHA, VA and USDA loans require documentation for deposits made into bank accounts used for down payment and or reserves. Why? The direct answer is based on the Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) and the Bank Secrecy Act of 1970.
Over the last 10 years I have heard many clients state, "It's my money and it is none of the bank's business where and how I obtained it... It is funds available and I can use it any way that I please." Although I agree that the money in your account is and can be used to make everyday purchases through the banking channel, it is very important to a mortgage lender where you obtained the funds.
A mortgage bank is lending a tremendous amount of money to purchase or secure a lien against real property. The fact they have the money to lend doesn't mean that a borrower is entitled to receive a loan. If a regulator of these loans requires documentation for the source of funds as a requirement to receive the loan, then the decision to provide or not provide is that of the borrower. In the end, if you need financing, then you must provide what is requested. After all, do borrowers believe that the mortgage company and the loan staff truly want more paperwork to review?
Here are some helpful tips on what to do to make the home loan process more manageable:
1. Mortgage finance typically has a look back period of two months' bank cycles. You should provide all pages of the bank statements. Even if the page is blank. If the statement says one of six pages, provide all six pages.
2. Document all deposits that are not direct deposit payroll (underwriters will match up deposits based on the paystubs in the file).
3. To document a deposit, provide a copy of the check. (The actual check that was deposited.) The amount of the check and the posted amount to the account should match. Although it is easier for a teller to give you "cash back" and net deposit a lesser amount, it will make your proof of deposit amount more difficult. My advice is to post the exact amount of the check, then complete a second transaction for whatever cash you would like to withdraw or simply go to the ATM to withdraw cash.
4. All funds that are in the account will be verified. Be prepared. If you are one who transfers funds between accounts, be aware that the bank will ask for proof of the originating source of the funds from the transfer and then will scrutinize the deposits in the other account.
5. If you pay or receive funds electronically that are not payroll, be prepared to write a letter of explanation and provide proof.
6. Cash is rarely a suitable form of closing funds for a home loan. If this is the source, be prepared to not be able to use it! Sounds ridiculous, but I have seen many times when the cash is unsourced and therefore unusable. A word of advice: Deposit the funds into the bank account at least 90 days prior to the use of the funds so that the funds are considered "seasoned" and do not show deposited into the account but rather are available already.
7. If you have multiple jobs, collect money from family or roommates, or pay bills collectively for a group (like family plan cell phones), be prepared to document each deposit with proof and a letter of explanation.
8. You will be asked to prove that any checks or funds used for escrow or inspections have cleared your account. The bank will request a copy of the canceled check and or proof of the check clearing with a transaction history. Just provide it! Don't ask why. The bank is looking for proof that the amount has cleared and the remaining balance in the account to be sure you have sufficient funds for closing. Additionally, if you have additional deposits in the transaction history since the last statement, you will be asked to provide their source.
If you follow these tips, your loan will move much more smoothly. A way to reduce stress, especially if you have odd deposits or cash deposits, is to use another account for those quirky deposits and do not comingle funds. Keep them separate. All funds needed for closing should be in a sourceable account.
-- Allyn S. Medeiros is a licensed mortgage professional at Agape Mortgage in Bakersfield, NMLS #214606. Contact him at email@example.com or 496-9311. The opinions here are his own.