One of the most underrated challenges in a mortgage qualification is how funds are documented. What might seem to be a very straight forward process, ends up causing countless delays to a mortgage closing - and sometimes prevents it from happening altogether. Regardless of whether one is looking to buy a home or refinance an existing home, knowing how to present your funds to the bank is critical in helping you obtain a swift approval.
While I cannot reveal all of my tricks and tips in a newspaper article, I will highlight some of the challenges that I see happening on a consistent basis, and will try to give you the “behinds the scene look” at what banks consider when doing their analysis. Additionally, I will also try to give the “best practice” suggestions that might help avoid some of these issues from occurring in the first place. At the same time, I do invite anyone who might be having a challenge as it pertains to their “asset verification” to contact me directly to get a full no-obligation consultation to help you navigate through whatever issue you might be facing.
Typically, there are three categories of asset verification that a bank will be examining. On a purchase, there is the initial down-payment (deposit) verification, which is the 5-10% payment that is given after the conclusion of the Attorney Review period. Prior to closing, the bank will want to verify that a borrower has sufficient funds for closing. The funds that are needed for closing are comprised of the balance of the down-payment, as well as all applicable closing fees. Separate from these funds is additional monies needed if the loan program calls for reserve funds needed or qualification. That simply means, that in some cases, the bank is looking to make sure that after all of the required monies have been allotted, that the applicant has an additional 2-3, or sometimes as high as 6-12 months of mortgage payments in excess funds available after all closing-costs are paid.
All banks are looking for “seasoned funds,” which simply means that the monies have been in the applicant’s bank account for at least 60 days. This is usually done via providing complete bank statements for the most recent two months. Other methods of bank account verification might be acceptable but you should speak with your lender to confirm what would work in your specific case. (Tip: provide all pages of the statement, even if they are blank or insignificant).
The statements you provide will be reviewed line-by-line, and any unusual or large deposit will require satisfactory verification. While it is common for home buyers or self-employed applicants to be receiving an irregular or one-time deposit into their account – whether it be as a gift or as an income distribution, you must be aware that it will trigger an immediate red-flag while being reviewed by an underwriter. Furthermore, you should also find out if the closing funds (monies that you need to bring to closing) have to come from the accounts that have been furnished at application. Some large commercial banks are very strict and demanding in this regard.
It is important to know that between heavy banking regulations for Anti Money Laundering and Suspicious Activity Reporting, banks simply want to confirm that the erratic deposits that are suddenly showing up in an applicant’s account is not as a result of loans or liabilities that are not being disclosed. Should the deposit prove to be funds that cannot be documented, even if not a loan, it will be deducted from an applicant Available Funds for Qualification. This might result in a Loan Denial.
Finally, it is not uncommon for someone to provide many bank statements showing multiple accounts or different accounts at several different banks – assuming “the more the merrier.” That is not the case. My ultimate recommendation is that “less is more.” Find out from your Lender exactly how much you need to verify, and provide the accounts that get you to that number easiest. Even if you are able to explain the large deposit, the hassle and inconvenience is just not worth the aggravation. It is important to spend the time in advance to anticipate potential frustration and navigate your away around it before presenting too much information. Special shout out to Elliot and Lori Linzer - Mazal Tov!
By Shmuel Shayowitz
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience including licenses and certifications as certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]