Qualifying for a Mortgage? Don't Step in a Large Deposit Mess

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Mortgage and Lending with Guaranteed Rate, Marin County, CA NMLS: 22343

Qualifying for a Mortgage? Don't Step in a Large Deposit Mess

 

By far, one of the most confounding experiences when one goes to obtain a mortgage is the sourcing of "large deposits" on a bank statement.  This is our industry's gift that keeps giving.  However, there are some ways to avoid inadvertently stepping into trouble and like with most things in life, an ounce of prevention is worth a pound of cure.  

 

What Is a Large Deposit?

Most of the time a mortgage lender will define a large deposit as a non-payroll deposit that exceeds 50% of your gross monthly income.  So, let's say you provide a bank statement to us.  We see an ATM or teller deposit for $6175 and your gross monthly income is $10K.  You can expect we will ask to know what the deposit is and where it came from.  Different lenders and different programs may have different thresholds, and there is subjectivity to this as well.  With a borrower who makes $10K a month, it's not unreasonable to think an underwriter might ask to know about a non-payroll deposit of $4750.  It's happened before...

 

What's the Big Deal with Large Deposits?

Remember, at the end of the day, your lender is assessing your creditworthiness and your ability to repay the loan.  If the money you plan to use as a down payment is not derived from savings with a documentable history, your lender will want to know if the money coming into your accounts is from a legitimate source.  Or, is it a loan?  If the latter, does it now require a monthly payment we must factor into the debt-to-income (DTI) ratio?  The large deposit test creates a firewall for the lender where a buyer who otherwise could not afford to buy gets "propped up" by family, friends or undisclosed creditors just prior to purchasing the home.  And it's precisely these question marks that create the addtion risk for the lender.

 

Reality Sets In

Let's face it, if you're planning to buy a home, you should be planning.  If you're going to be moving money to your accounts from other sources that you know will invite questions, it is best to allow these funds to "season" in your account for a period of time that exceeds the lender's documentation requirements (usually two months).  After all, I'm not going to assume all large, non-payroll deposits are illicit drug deals.  There can be a lot of honest bank activity that is almost impossible to source.  If you know that you're going to be relying on this kind of funds to close escrow, get it into your accounts long before you plan to make a mortgage application.

 

What About Gifts?

Gift funds are allowed in most transactions and within guidelines, but practically every mortgage lender will ONLY recognize gift funds from a family member.  Where large deposits that are "gifts" get into difficulty is not necessarily the sourcing, but the source.  Sometimes, the family relationship is not there.  How do we know who is the donor?  Simple, we require a gift letter that will outline the relationship. 

 

In the mortgage industry, two, clean months of bank statements with no large deposits are our equivalent of Eureka.  I'm convinced that if every potential buyer or borrower knew this in advance, we'd drastically cut down on the number of bad customer experiences.  The worst outcome for our clients is, of course, that when we source a large deposit from another bank account, that origin account also has large deposits, and so on.  You can see how this would get less and less fun...quickly.  So, understand this basic concept and call with any questions.  If we can help you plan for a smoother transaction, we're happy to be of service. 

 

Where's the beef, 

 

 

Robert J. Spinosa
Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 
rob.spinosa@rate.com

 

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.

 

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood ChicagoIL 60613 - (866) 934-7283

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Tags:
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Rob no matter how much we stress this to borrowers, many times they still create needless issues because they did not listen.

Oct 21, 2019 01:12 PM #1
Rainmaker
501,257
Jim Patton
Aspire Home Real Estate 209-404-0816 - Modesto, CA
Realtor - Stanislaus ,Merced, San Joaquin Counties

Great information Rob Spinosa .  This is something all borrowers need to know.

Oct 23, 2019 03:31 PM #2
Rainmaker
1,967,830
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Rob Spinosa - We hear this story over and over.  Like George Souto says some people just do not listen and create needless problems.

Oct 26, 2019 04:02 AM #3
Ambassador
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Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Great education here, as always, Rob. I have had several buyers over the years who ran into issues with large deposits - they were explainable, of course, but documenting the paper trail was a challenge.

Jeff

Oct 27, 2019 12:46 PM #4
Rainmaker
1,460,854
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

Yes, large deposits need to be explained. If you just sold a house, make sure you know where your closing disclosure is so you can prove the source of the funds. Planning properly to purchase a house is a "must!"

Oct 28, 2019 06:06 AM #5
Rainer
218,327
Robert Hicks
United Country River City Realty - Savannah, TN

Great info here that is “ often” overlooked.. I know from experience 😳👍🇺🇸

Oct 28, 2019 06:20 PM #6
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Rob Spinosa

Vice President of Mortgage Lending, Marin County
Can I Get a Jumbo Loan with 10% Down?
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