In our last blog post, we talked about why lenders “source” down payment and closing funds. The main reason for sourcing your funds is that your lender needs to know where the money for your mortgage loan is coming from. In other words, they want to make sure you have personally accumulated the money – and that it’s not borrowed from someone else. Plus, they want to make sure you’ve had that money in your bank account for at least 60 days prior to closing.

So, if you’re planning on taking out a new home loan or refinancing an existing loan, here are the steps you should follow to move money into your bank account – without being surprised or frustrated with sourcing guidelines:

1. Identify the bank account you will move your down payment and closing funds into, such as your checking or savings account.

2. Place your down payment and closing funds into this account.

3. List this account on your loan application.

4. Gather your sourcing documentation for ALL deposits into the bank account used for closing. Three documents are required for sourcing your funds. (Note: All financial documents must include your name on the account, the name of your financial institution, and the account number.) Documentation includes:

• Account statements for the previous 60 days (prior to the closing date) that your money was placed into.
• Documents showing the source of the funds that were moved into the account. For example, a copy of a paycheck deposited into your account.
• Documents that record the movement of the funds into the account, such as a deposit slip or the bank statement showing the automatic deposit of your paycheck.

5. If the loan will close before your monthly bank account statement is ready, you will need a “transaction activity report.” This document lists all of the deposits and withdrawals in your identified bank account since the date of your last bank statement. You can get a copy of this report by either: a) Asking your bank representative to print out an account transaction report for you; or b) Accessing your bank account online; indicating your beginning and ending dates for your account activities; and printing out the document. (Note: This activity report must overlap the last bank account statement you received.)

6. Lending guidelines only allow you to receive down payment gifts from certain parties, such as a family member. Money cannot be gifted by a friend. All gifted funds must be sourced, too. The underwriter will require: a) A bank statement from your account showing the amount of the gift deposited; b) A bank statement from the donor’s account showing the funds came from their account; c) A gift letter from the donor stating the money is a gift; and d) A copy of the check made out to you. The gifted amount MUST match on your bank statement, the donor’s bank statement, the gift letter and the copy of the check.

All of your sourcing documentation must be detailed and complete. The amounts of all deposits into the account must match up. In other words, the check amounts into the bank account MUST match the amount listed on the bank statement or transaction activity report. If you use a statement for another bank account besides the account your closing funds are in, all deposits into that bank account must be sourced, too.

Additionally, your lender may ask for a letter of explanation for large deposits. In this letter, you’ll need to provide the bank’s name, date of deposit, account number and an explanation of where the money for the deposit came from. Your Grandview Lending mortgage specialist can help you with writing this letter.

Sourcing your down payment and closing funds is an important step for the approval of your loan. If you have any questions about the documents you may need to source your funds, contact your mortgage specialist. At Grandview Lending, we pride ourselves in providing our customers with personalized assistance in processing their loans.