Making Sure Your Cash-To-Close Comes From The Proper Source

Providing proper asset documentation and the actual source of the funds is a critical element of the loan closing process.

There’s nothing worse in a real estate purchase than making it all the way through the hoops and hurdles just to have a loan denied after the final documents have been signed due to the borrower using the wrong checking account for the down payment.

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.

A Few Acceptable Sources Of Down Payment Include:

  • Bank Accounts – checking / savings
  • Investment Accounts – money market, mutual funds
  • Retirement Funds – keep in mind that borrowing against a 401K plan will require a repayment, which will be calculated in the Debt-to-Income Ratio
  • 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

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 good rule-of-thumb to remember is that whatever funds you’re using as a down payment have to be pre-approved by an underwriter at the beginning of the mortgage approval process.

Basically, if you accidentally forget to deposit money in your checking account on the way to the closing appointment, it is not acceptable to get a cashier’s check from a friend’s account until you have a chance to pay them back later.


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?

Yes, but generally this needs to be a bonus you regularly receive

Q:  Can I borrow the money from a friend?

No, any money that needs to be repaid is typically an unacceptable source of funds


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March 28, 2010 by · Leave a Comment

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About Allen

Allen is President and Founder of First Trust Mortgage, a family owned, 15 year old, mortgage planning firm in Fort Lauderdale, Florida. First Trust Mortgage was founded in 1996 and provides residential mortgages in Florida. Allen's vision for First Trust Mortgage was based on two principles. First was to help his clients make informed decisions regarding residential mortgages. Second was to build long lasting relationships with his clients and referral partners. Over the past 5 years Allen has concentrated his education and efforts in the area of managing Real Estate equity through mortgage planning. Allen was one of the first certified mortgage planning specialists in the State of Florida and is a regular guest of Steve Pomegranate's "On The Money" radio program on NPR and Ray West's "Talk About Money" radio program on WAFG. Allen also teaches continuing education classes to certified financial planners and insurance professionals around the subject of managing equity in real estate. Allen graduated from the Pennsylvania State University in 1983. Allen has been lending in Florida since 1985 when he joined Great Western Bank (Washington Mutual) managing the company's Florida Commercial Real Estate Mortgage operation. In 1996 /1997 Great Western Bank was sold to Washington Mutual and Allen formed First Trust Mortgage Corporation. In 2003 Allen focused his practice on Strategic Real Estate Equity Management and is considered to be an expert on that topic. Allen practices personally the concepts he shares with the clients, peers and financial service providers. Allen exclusively participates in the residential mortgage industry and has purposely chosen to hold no other licenses even though he has participated and passed the class requirement for the Florida Real Estate Commission, Florida Mortgage Broker, Health, Life & Variable annuities license. Specialties Helping Consumers, Realtors and Financial Service Professionals Keep Current On Mortgage Trends and Provide Mortgage Solutions As Needed. In Addition I Love To Educate Seniors On The Use of Reverse Mortgages and First Time Homebuyers On How Much Payment Is Enough.

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