Asset & Bank Account Statements: How Sourcing of Funds Works

Documenting funds to close and reserves is often one of the most cumbersome parts of the entire mortgage loan closing process. While mortgage lending guidelines are rigid when it comes to the documentation of funds there is no gray area.

While it might seem like your mortgage lender is asking for ridiculous specific documentation, now they are simply following federal guidelines.

Mortgage lenders typically require at least a 60-day transaction history for bank accounts that are being used as a part of a mortgage transaction. There can be absolutely no gaps in this 60-day transaction history. This is due to the fact that it is mandated by the Patriot Act.

Oftentimes this results in the need for bank account transaction summaries that date back to the latest statement available, especially if recently deposited funds are needed for closing. Another important aspect to note is that most loan programs require funds to show in the account as ‘cleared’, not ‘pending’, to be considered eligible.

It is also important to ensure that all identifying features are available on the statements/summaries provided. Anything that is not an official document will not be acceptable (think excel spreadsheet).

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One common scenario that arises during the loan underwriting process is that there are individuals on a bank account statement who are not a part of the loan. When this occurs, most loan programs will require a signed letter from the non-borrowing individual that outlines the borrower has access to use all the funds in the account.

Another common scenario that arises is that funds are coming from a borrower’s business bank account. This is allowed on most loan programs as long as the borrower is at least a 50% owner of the business. If income from that business is also being used to qualify, a letter from a CPA or tax preparer might be required to evidence that the use of these funds will have no impact on the day-to-day operations of the business.

A third scenario that arises is when the funds being used for a mortgage loan closing are held in a trust account. In this case, a copy of the trust certification is required to prove there is unrestricted access to the funds and that they can be used to purchase property. The trust certificate typically identifies the permissible use of closing funds.

If you have questions about the loan process or how to get started, feel free to contact us

One of our Loan Officers will be pleased to help you.

This article was originally published by Alex Peters in www.bluefiremortgage.com