Trust Accounts
Trust accounts are a type of financial account that you might be able to use when buying a home. If you have a trust account, the money in it can be used for your down payment, the costs you pay at closing, and your reserves. Reserves are extra money that lenders like to see you have, to make sure you can keep paying your mortgage if your income stops or your expenses go up unexpectedly.
For the lender to count your trust account money, two things must happen:
1. The lender needs a written statement showing how much money is in the trust account. This statement can come from the person or company managing the trust, often called the trust manager or trustee.
2. The lender must also check and write down the rules about how and when you can use the money in the trust. Plus, if taking money out of the trust will reduce the income you make from the trust, the lender has to note that. This is important because if you’re using trust income to help qualify for the mortgage (showing you have enough money coming in to make your payments), taking out a big chunk could change the picture.
Let’s say you have a trust account left to you by a relative. This account gives you a certain amount of money each month, which you want to use to help qualify for a home loan. Before the lender can say yes to using both the trust income and the trust itself for your down payment, they need to look at how taking a large amount out for the down payment will affect the monthly income you’ve been relying on. If pulling out a lot of money doesn’t change the monthly income, you might be in a good spot. But if it does, the lender will have to take that into account.
References
For more details, visit Trust Accounts of the Fannie Mae Selling Guide.