Cash Deposits and Home Loan Approval

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Cash is king right?  Try asking the guy who just applied for a home loan.  Cash is anything but King in mortgage lending.  However, believe it or not underwriters do not dislike cash as much as you might think.  If your loan came to a grinding halt because of mattress money, read on!

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Large Cash Deposits on a Home Loan Application

There are several different home loan products available to home-buyers.  In addition, the number of borrowers financial scenarios is endless.  After-all, every borrower’s situation is unique.  As a result, no one size fits all rule exists regarding large cash deposits on a home loan.

Conventional Home Loan and Cash Deposits

It is fairly difficult to get away with large cash deposits when using a conventional loan.  However, cash deposits totaling 50% or less of the borrower’s gross monthly income do not require supporting documentation.  This rule applies to individual cash deposits on your bank statement(s).

For example, assume the following:

  • Borrower earns $6,000 per month
  • $2,500 Large deposit appears on bank statement

In this case, no further documentation is required due to the fact that the large cash deposit is less than 50% of gross income.

VA Home Loan and Cash Deposits

VA is not crystal clear on how they evaluate cash deposits.  Instead, VA underwriters evaluate each cash deposit on a case by case basis.  Therefore, veteran’s with large cash deposits should have everything reviewed thoroughly prior to pre-approval.  In fact, I highly suggest doing this as it eliminates cash related surprises while under contract.

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FHA Home Loan and Cash Deposits

FHA allows cash deposits on a home loan application under certain circumstances.  In fact, 2 key rules shape FHA’s attitude toward cash deposits:

  1. Borrower deposits cash into a bank or escrow account
  2. Letter of explanation regarding how cash accumulated and how long it took to save

What is an FHA Underwriter Looking For?  FHA underwriters review specific aspects to determine the reasonableness of the borrower having a large sum of cash on hand.  For example, FHA underwriters look at:

  • Borrower’s income
  • Period time during which cash accumulated
  • Borrower’s spending habits and documented expenses
  • Whether or not the borrower has a checking/savings account

While not a walk in the park, using cash as on an FHA loan is an option.

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As you can see, every loan type has it’s own cash deposit requirements.  Large cash deposits are one of the most susceptible parts of the loan process to underwriter objectivity.  While there are rules as outlined above, in the end it all must make logical sense to an underwriter.

By Jeremy House

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