How to Avoid a Major Mortgage Underwriting Obstacle

Mortgage and Lending


Mortgage underwriting after the credit crisis of 2008 and 2009 is like navigating a downtown Boston St. after a harsh New England winter, it's full of pot holes. These underwriting pot holes can deflate your hopes of an on time closing if you don't know have the vision to see what lies ahead. The most frustrating of these obstacles areincomplete bank statements and sourcing deposits in your checking and savings account. A required underwriting condition with most purchase loans, whether that's conventional or government, is to provide the last 2 months worth of bank statements.

When providing these statements, it's very important that these are full bank statements that include your

  • NAME
  • FULL ACCOUNT NUMBER (no partial #s or Xs)
  • ALL PAGES of the statement. (if it says 1 of 7, provide all 7)

It is also important that we evaluate the bank statements together prior to signing the purchase and sales agreement to make sure that the down payment money and any deposits can be "sourced".

What does it mean to "source" a deposit?

Essentially to source a deposit means to create a paper trail for that deposit. As a client/loan officer team, we have to be able to clearly document where that money came from. The banks need to make sure that these are legal sources of money as well as make sure that you have adaquet down payment funds. When an underwriter analyzes a complete bank statement they are going to pay special attention to the deposits into your account that are NOT direct deposit. This includes; transfers from other accounts, check deposits and cash deposits. If these are larger amounts, meaning over $400, or they total over $1,000 in one 30 day period we will need to "source" them. The list below will provide you with a guide of what is required for each of these 3 types of deposits.

Transfers: For a transfer we need to follow the trail of where it came from. This would include providing documentation of source of the tranfer. If it came from another account we would need a full statment from that account. Same would be true if it came from a brokerage account.

Check Deposits: For a check deposit, underwriting will require a copy of the check and a brief explanation as to what that check is for. They will then determine if that is an acceptable source.

Cash Deposits: For a cash deposit, underwriting will need a copy of the deposit slip and an explanation as to where the cash came from.

IMPORTANT TO REMEMBER - Most underwriting guidelines will not allow you to use cash deposits to count towards your down payment. For example: if you have $5,000 in your checking account and $2,000 of that money is from a cash or check deposit that cannot be traced back to employment income with a copy of a pay-stub, or rental income with a copy of a rent receipt, the underwriters can back that money out of their calculations. In other words, that $5,000 is now only $3,000 because that check or cash deposit cannot be "sourced".

Never make a large deposit or transfer into your account while your loan is in underwriting without first discussing it with your mortgage professional.

As you can see it is very important to be up front with your mortgage professional about what is included on bank statements. By taking the time to review the paperwork throughly at the beginning of hte process you will save time, aggrevation, and improve your chances of a successful on time closing.





Posted by


John B. Saari


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Pat Laracy Baker
Realty Executives Boston West - Holliston, MA
Realtor, Green, ABR, Holliston, Massachusetts

Hi John, What a year huh?  Great blog. You are setting out to do what you purposed to do when you created your blog and that is to educate.  You do not have an easy job.  Thank you for sharing.   Really appreciate the advice.  all the best in 2012.

Dec 29, 2011 12:39 PM #1
Randi Brammer
Randi Brammer, Acctg. - Hinckley, MN
Accountant & Tax Preparer

Complete paperwork will keep things moving.  Without all the information, things come to a standstill

Dec 29, 2011 12:48 PM #2
John M. Scott
BRE # 01442690, Scott Keys Properties - San Francisco, CA
Broker / Owner San Francisco Bay Area

What about gift deposits John. Relatives who are trying to help?

Dec 29, 2011 01:05 PM #3
Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Your post should be required reading for anyone about to apply for a home loan. Good info for a lot of folks here.


Dec 29, 2011 01:20 PM #4
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

John - Great post outlining sourcing funds to close.  This can be a deal breaker, which is why borrowers and MLOs need to address these issues from the get-go.  I can't tell you how many times I've had to tell someone that I can't pre-approve them yet because of unsourced funds.  With a little seasoning, these issues can be resolved and this is a great lesson that the borrowers won't forget.

Dec 29, 2011 02:54 PM #5
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

John - Thank you for sharing detailed quality information on how to avoid a major mortgage underwriting obstacle.

Dec 29, 2011 03:37 PM #6
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Hi John - I am trying to be difficult but why the difference between a mortgage company and the local credit union?  There is so much more documentation needed with the mortgage company.

Dec 29, 2011 10:53 PM #7
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