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Asset Documentation Tips for Home Buyers

By Jeff Coon

Mortgage and Lending with Annie Mac Home Mortgage NMLS ID 19375

June 22, 2012 04:41 AM

FOR BUYERS & REALTORS

One of the biggest obstacles we face today in processing mortgage applications is obtaining proof of assets for funds to close the deal.

Many buyers have multiple bank accounts, stocks, bonds, CD’s, Gifts, etc. They often make large deposits, transfer money, and sometimes they even want to use cash when buying a home.

This is often the biggest issue we have when trying to complete a file on time- documenting all the money! house

Underwriting guidelines strictly require a full paper trail of any & all assets to be used to fund the purchase of a home. There are laws we must follow to prevent money laundering, criminal activity, funding of terrorism, etc.

We need to warrant to the end investor that any funds used towards the purchase come from an allowable source, and that due diligence was followed.

Here’s some general guidelines:

Earnest Money Deposits- We’ll need a copy of the cancelled check. (front & back )Don’t hold these in the file, get them deposited right away so the buyers can provide copies. We also need to show an updated bank statement showing how much they have left after this money exits the account.

Bank Statements- We’ll often need bank statements going back for 30-60 days prior to closing to document the buyer’s funds for closing. Any large deposits will need to be explained, & sourced (proof of where it came from) Cash Deposits are troublesome, as it is often impossible to trace the source of cash. We need all pages of a bank or asset statement, even if some are blank or don’t have ‘useful’ information on them. Often an online account history will not provide the required information, but they can often be used to update an account balance instead of waiting for the next statement period.

Gifts- Many loan programs allow for gifts to be received & used towards the purchase. Gift documentation must include: a fully executed gift letter, ( we provide a form for this ) a copy of the gift check, and often a copy of the donor’s account to prove the source of the gift.

Large Deposits / Transfers- Any large deposits on a statement that are not considered ‘normal’ will be questioned, and require proof of where the money came from. ( example: $5,000 deposit into account- source was a bonus/expense check from job. Provide copy of check stub. ) Transfers from one account to another require the other account to be documented with statements.

Proceeds from Sale of Personal Property- If a borrower sells an asset, they need to document the paper trail from that sale. ( example: sale of a car- make photocopy of the signed title, copy of the check rcv’d from buyer, / or receipt of cash, and any other items to help clarify the paper trail )

CASH- Cash is no good, unless you can pay for the whole home that way. “Mattress Money” & Piggybank home savings cannot be sourced & documented. Buyers would be well advised to put their money into a bank account before starting to shop for a home to avoid a waiting or “seasoning” period for their funds.

Retirement accounts- Typically only 70% of the funds listed in a retirement account can be counted towards assets. ( this is due to potential market volatility & tax consequences from withdrawal )

Reserves- Some loans or scenarios will require reserve funds. Reserves are counted as 1 monthly PITI payment, so if the program guide calls for 6 months of reserves, the buyer must have 6 total mortgage payments left over after closing. These funds cannot be a gift.

Insufficient Funds charges- If you have NSF charges on your statement, be ready to write an explanation about what happened, and why it won’t happen again.

Business accounts- If you plan on using funds in a business account, your CPA will need to provide a letter stating that withdrawal of these funds will not adversely impact the operation of the business.

Joint accounts- If the buyer shares an account with another person not named on the purchase transaction, a letter may be required from the other account holder to verify the borrower has 100% use of the funds, and permission to use them towards the purchase.

When in doubt, ask your mortgage professional what specific documentation may be needed for the borrower’s specific transaction. A little time spent in advance can save days/weeks of chasing paperwork during processing, and avoid a headache.

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