Document Large Deposits on a Mortgage

Documenting Large Deposits

Documenting deposits has to rank as one of the most annoying parts of applying for a new home loan.  Have you heard the wise crack that goes something like “my mortgage lender needed everything except a DNA sample” from folks that have recently applied for a new mortgage?  There is a very good chance that the frustration that birthed what has now become a cliche was caused by borrowers that had to document the “large” deposits in their bank accounts.  You thought Chinese water torture could make you crazy?  Try documenting deposits for your lender.

For some time now Arizona Mortgage Lenders have required that home loan applicants document any “large” and “unidentified” deposits that show up in their checking/savings accounts.  In short, anything that was not a payroll, tax refund or retirement income deposit needed to be fully documented prior to final home loan approval.   The process often wound up seeming like a bottomless rabbit hole in certain cases as one deposit led to another and so on.  In other cases cancelled checks and letters of explanation verifying where the funds came from had to be gathered and sent into the mortgage company for approval.

Large Deposit Verification Just Got Easier on Conventional Loans

I wish that this post was the official announcement claiming the end of all the deposit documentation madness!  While it is most certainly not the beginning of the end of cancelled checks and letters of explanation, I am happy to announce that Fannie Mae just announced a new set of guidelines that will make documenting large deposits much easier.  The new regs were posted in announcement SEL 2012-13 .   Here is a summary of the new and improved large deposit guidelines:

Definition of a large deposit:

Any unidentified deposit that exceeds 25% of the borrowers gross monthly income

  • Borrower’s must provide a written explanation and documentation of the source of the large deposits that are reflected on bank statements unless
  • The source of a large deposit is readily identifiable on the account statement, such as direct deposits from an employer (payroll), Social Security Administration, or IRS or state income tax refunds, and the source of the deposit is printed on the statement, further explanation or documentation is not necessary.
  • If the source of the deposit is printed on the bank statement, but the lender/underwriter still has questions as to whether the funds may have been borrowed, additional documentation may be required.

For Example:

If a borrower has a gross income of $4,000 per month, any unidentified deposit that appears on their bank statements that is greater than $1,000 (25% x’w $4,000) will be considered a “large deposit” and must be documented/sourced.  The borrower must show the source of the deposit typically with a cancelled check and a letter explaining the where the deposit came from.

The good news is that in the example outlined above, any unidentified deposit less than $1,000 is NO LONGER considered a “large deposit” and does NOT need any further documentation.  The funds however WILL still be considered as available funds by the Phoenix area mortgage lender (as long as that lender abides by Fannie Mae guidelines).

This will lighten the documentation workload on borrowers going forward!  In fact, Fannie Mae must be getting a little tired of being called harsh and hearing Arizona Mortgage applicants gripe about how current mortgage regulations have become down right ridiculous.  The announcement I provided a link to above contains a few additional easements in current lending regulations.  Check it out for more info!

Please let me know if you have any questions regarding how to document your large deposits or how you can obtain a quick, free pre-approval with The HOUSE Team.

By Jeremy House


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