Mortgage Info for Homes and Small Business Financing

Large Deposits Must Be Verified for Mortgage Underwriting

Yes, the money is yours.

Someone repaid the loan you were owed.  A court decided that you were to receive the award.  Your employer thought so much of you as to reward you with a bonus.  Or perhaps, a family member made the decision to help you with a gift.

It is all your money now.  But, if the deposit showed up on the bank statements that were provided to the underwriter or on a subsequent bank statement, then those funds must be “sourced and verified”.

Lighthouse standing strong against pounding waves

Divorce is too often a consequence of modern life.  When it happens marital assets are divided among the former spouses by some prearranged decision or by a verdict of the court system.  If one of the spouses will be using some or all of the assets received from the divorce, then the transfer and receipt of those assets must be carefully documented.

Yes, it says right there in the property settlement agreement (PSA) you will receive this and that.  If that division results in a deposit made into your account used to purchase your new home then it too, will have to be documented.  If it is considered a large deposit, something greater than $1,000 and it is not from a recognizable source such as a payroll deposit then it will typically have to “be sourced” even if it isn’t used in the purchase of your new home.

Often the assets received in a situation like this are as a result of the sale or cash-out refinance of the property where the former spouses lived.  And the assets won’t be coming directly from a former spouse in the form of a check.  Because of the size of the amount involved the funds may be wired by the title company into your account.  In this case, a copy of the HUD-1 from sale or refinance and a copy of correspondence from the title company indicating the transfer of funds would typically suffice for underwriting purposes.

Other times, the former spouse may be cashing out part of their retirement account as agreed to give to the other spouse.  That transfer of funds must also be carefully documented.   At the least, a clear, legible copy of the check and deposit ticket must be retained.  The underwriter must be able to easily read who the check was from and the date and the amount on the deposit ticket.  The amount of the check should match the deposit ticket.   If you need cash, I suggest you create another separate transaction.

A point that is not usually understood is that if you fax a copy to your lender of what seems to be a perfectly legible document there will be some degradation of the image.  Lenders then typically scan the document into their underwriting system which furthers degrades the image sometimes making it illegible.   And you sit there with a document which is easy to read wondering why you are being asked to supply a legible copy.

This is one of the more common problems that I see and more importantly hear from consumers.  “I sent them the documents they asked for and now they are asking for more”, is not an uncommon phrase to hear from borrowers coming to me for help once they have been frustrated to no end working with a big bank lender.  One of the problems is that the request for documents is made by a processor.  Once the documents are delivered the processor has to act in the bank’s interest.

When you send documents to me I will review them for completeness and suitability before sending them to the lender’s underwriter.  I will make sure they will be acceptable and accomplish the task for which they were intended.  I want to be sure that your level of frustration is minimized.  We all have enough of that from other sources.  No need to add another.

Know someone in this situation?  Be a good friend and pass this article on to them.

photo by Safoocat

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2 Responses to Large Deposits Must Be Verified for Mortgage Underwriting

  1. Hi,

    I applied for the conventional loan. I had 3 large deposits last year on October. That 3 large deposits was cash because I got married last year and Everyone most of them gave us cash as a money bag. Now underwriter is questioning for that large 3 deposits. I have no proof for the cash. What I should do Please advise.

    • Hi,
      Cash deposits are always tricky and difficult to verify the source.
      Here’s what I might suggest to an underwriter: write a letter detailing the nature of your deposits explaining that they were a result of wedding gifts and are typical for your family or guests. Provide a copy of your marriage license and something like a copy of the program from the wedding showing your wedding date. Get a letter from someone who is not family but gave you cash. Have them describe their gift to you and why they gave you cash.
      Did you ask for cash in a program registry (or something like that)? Print a copy of that out showing that it was you and your spouse.
      You’re trying to make the underwriter comfortable to accept the deposits as reasonable. Give that underwriter every reason to do so.

      Good luck! Let us know what happens.

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