Providing proper asset documentation and the actual source of the funds is a critical element of buying a home.
It is extremely important to make sure your loan officer is aware of the exact source of your down payment as early in the process as possible so that all necessary questions, documentation and explanations can be reviewed / approved by an underwriter.
A Few Acceptable Sources Of Down Payment Include:
- Bank Accounts – checking / savings
- Investment Accounts – money market, mutual funds
- Retirement Funds / 401k
- Life Insurance – Cash value and face amount
- Gifts – Family members can gift down payment funds with certain restrictions
- Inheritance / Trust Funds
- Government Grants – Many state, county and city agencies offer special down payment assistance programs
Seasoning of the down payment money is just as important as the source, which is why underwriters typically require at least two months bank / asset statements in the initial mortgage approval process. Keep in mind that all deposits on bank statements have to be “sourced”, ie. the underwriter will want to know where the deposit came from.
Frequently Asked Questions:
Q: What if I don’t have a bank account and cannot properly source my funds to close?
Cash on hand is an acceptable source of funds for some loan programs, but make sure you bring that detail up at the application stage
Q: Can I use a bonus from my employer for my down payment?
Q: Can I borrow the money from a friend?
No, any money that needs to be repaid, is typically an unacceptable source of funds