Today we’re going to be talking about large deposits and why you shouldn’t make any large deposits into your bank account, switch banks, or transfer money between accounts during the mortgage loan process.

What constitutes a large deposit?

Every loan program has their own guidance on what constitutes a large deposit. For example, in a conventional loan, a large deposit would be considered anything over 50% of the monthly qualifying income. For government loan programs, it would be 1% or more of the purchase price.

Ultimately, the underwriters have the final say. Even though we have some guidance from the secondary market investors and government agencies about what they expect, underwriters can always question or require explanations for any deposits that seem out of the ordinary in the mortgage loan process.

What if you were given a financial gift?

Gift funds are always acceptable if they’re from a first-generation relative and as long as they’re verified properly. By that, I mean that each loan program will have its own verification requirements. According to Fannie Mae, Freddie Mac, FHA, VA, and USDA, to document the gifts, we have to have a signed gift letter that we provide at application, which states that the funds are gifts and that no repayment is expected. This is signed by the one who gave the gift and yourself. We also need to see the donor’s most recent bank statements with no blackouts or altered account numbers, proving that they have the funds to give.

Additionally, the underwriters will look through the donor’s bank statements for any unusually large deposits that might be constituted as suspicious. It’s their job to look for and report any signs of money laundering. After that, you’ll need a copy of the canceled check or the wire confirmation of the donor wiring the funds to your account so that we can see the funds coming from their account and going into yours.

“Everything requires a paper trail in the mortgage loan process.”

Will switching banks hurt your chances of closing?

Switching banks isn’t necessarily as bad as having unsourced cash deposits. The important thing about switching banks is being able to demonstrate that the exact same amount of money from your old bank is transferred to your new one.

Everything requires a paper trail in the mortgage loan process. There are a lot of bad things that people try to use mortgage transactions for, like terrorism and laundering, so if you’re changing banks, just make sure that you’re saving all your paperwork from the closure of your previous account and the opening of the new one. It might be a good idea to start your new account with a cashier’s check from the old account instead of a cash deposit, just so that we can document and source it.

Will an overdrawn checking account hurt your chances of closing?

In the mortgage loan process, we are looking for non-sufficient funds and overdrafts, as well as anything that will reflect on your ability to make your mortgage payment timely every month. Explainable overdrafts won’t necessarily be bad, but underwriters will look for numerous overdraft fees. If you’re consistently overdrawing your account, they may question your ability to make that payment.

It’s always best to manage your money and watch your bank account through the loan process. Your full financial history over the last couple years is being assessed, so you’ll need to have your best foot forward.

If you have any questions about the mortgage loan process or your financial account history, don’t hesitate to reach out to us. We’d be glad to help and advise you however we can.