Introduction
When you’re buying a home and need a mortgage, the lender looks at your financial situation to decide if you can afford the loan. This includes checking your bank accounts to see if you have enough money for the down payment, closing costs, and emergency funds after you buy the house. The rules we’re talking about are set by Fannie Mae, a government-sponsored entity that makes mortgages more available to people.
Depository Accounts
A depository account is where you keep your money in a bank, like in a checking or savings account, a money market account, or in certificates of deposit (CDs). When you’re getting a mortgage, you can use money from these accounts to help pay for the house, but the lender has to check these accounts first. They need to make sure the money is really there and it’s yours to use. If they find any money in your account that looks like it was borrowed or isn’t yours, they have to take a closer look.
Business Assets
If you own a business, you might have a business account with money that you want to use towards buying a home. You can use this money for your down payment, closing costs, or as emergency funds, but only if you are listed as the owner of the account. The lender will check this account just like they do with personal accounts to make sure the money can be used for your mortgage. If you also use income from your business to qualify for the mortgage, there are extra rules to follow to prove that your business makes enough money.
Evaluating Large Deposits
Lenders pay special attention to large amounts of money that suddenly appear in your account. A “large deposit” is when you deposit an amount that is more than half of your total monthly income. If you’re applying for a mortgage, the lender will look at your bank statements from the last two months to check for these large deposits.
For a refinance, where you’re getting a new mortgage to replace the old one, you don’t need to explain where large deposits came from. However, the lender still needs to make sure any money you borrowed, including any debts that come with it, is accounted for.
For a new purchase, if you need the money from a large deposit to help buy the house, you must show where that money came from. If you can’t provide all the needed documents, the lender will use their best judgment based on what you can provide, your debt-to-income ratio, and your overall financial situation.
If part of a large deposit can’t be explained, the lender will only count the part of your money that can be verified when deciding if you qualify for the mortgage. If you can prove where part of a deposit came from but not the rest, only the unexplained part is considered when they decide if it’s a “large deposit.”
Examples
– If you make $4,000 a month and deposit $3,000, but can only prove that $2,500 of it is from your tax refund, only the remaining $500 that you can’t prove is looked at. Since $500 is less than half your monthly income, it’s not considered a large deposit.
– Using the same example, if you can only prove $500 of the $3,000 deposit, then $2,500 is considered a large deposit because it’s more than half your monthly income. So, you’d only be able to use $17,500 of your account’s $20,000 balance for the mortgage application.
If the money’s source is clear from your bank statement, like a paycheck or tax refund, you usually don’t need to provide more proof. But if there’s any doubt about whether the money was borrowed, you might need to give more information.
Fannie Mae’s DU (Desktop Underwriter) system can automatically check for large deposits. If DU says a deposit needs to be looked at, following those instructions will meet the requirement.
Request for Verification of Deposit
When a lender asks for a Verification of Deposit (VOD) but the form doesn’t show recent account activity, they will specifically check if:
– Any accounts were opened in the last 90 days.
– Account balances are much higher than usual.
They do this to make sure the money in your account is actually yours and not recently borrowed.
References
For more details, visit Depository Accounts of the Fannie Mae Selling Guide.