One of the most common conditions I see on approval letters is to source-proof large deposits. Many borrowers don’t realize that by depositing large amounts of money into their bank accounts they may be creating more work for themselves when seeking mortgage lending.
On a Conventional loan, the typical large deposit is considered any deposit greater than 50% of the borrower’s gross monthly income. For example, if a borrower makes $3000 per month prior to taxes and deductions, any deposit for more than $1500 must be sourced. With this being said, Underwriters look at the overall financial situation of the borrower to determine the need for proof of deposits. Keep in mind, if the funds aren’t needed as cash to close or reserves, they may be backed out with a Letter of Explanation (LOX).
Many underwriters follow the Conventional guidelines but keep in mind that some lenders may have stricter rules in place regarding this. For example, if you make about $100,000 per year and have a significant amount of money saved, you most likely will not see any conditions for deposits less than the 50% standard. The underwriter may question a smaller deposit if you have just enough money in your account to cover the down payment.
Government loans are in a completely different realm. Any deposit greater than 2% of the loan amount must be sourced. For example, if the loan amount is $100,000, you must source any deposit larger than $2000.
You may be wondering why lenders and investors care so much about large deposits. One of the most important reasons large deposits are checked is to confirm that the borrower has not taken any new loans against this money that would create a higher debt ratio. If the borrower takes out a loan and has a new payment added into their monthly obligations, it might ruin their chances to get the loan.
Any unusual deposit activity should be brought to the attention of your mortgage professional. This will help to ensure that your loan will close on time.
Talk to your professionals at Best Way Lending.