New federal laws require every lender to document every dollar that moves into your account to thwart money laundering and assist the feds to catch the bad guys.
What in the world, you may ask, does that have to do with my mortgage? When you apply for a mortgage many times you will be require to verify your assets. If you are buying you will need to prove you have the money for your down payment and closing costs. The lender may require that you prove you have reserves for some loan programs. For some refinance transaction you will also be required to prove you have assets for reserves. Any time you have to bring a dollar to closing you will be required to prove you have the money.
Here’s the challenge. Any time a lender looks at a bank statement they will review every single deposit you make. If the deposits are direct deposits from your employer or any documented source then you are all set. If, however, you have deposited anything other than that you must be prepared to prove where the money came from with cancelled checks and a verifiable explanation.
So what if it was cash? You may have to use another account or wait until you can provide the required proof of assets to the lender without seeing that deposit. In most cases that is thirty days, but it can be sixty days.
If you deposit cash from the sale of an item you must prove the following;
- Ownership – if it is a vehicle you must prove you owned it the title. If it is jewelry or other items like that you must show a purchase receipt or other proof.
- Proof of the value – if it’s vehicle the lender can verify the value through Kelly Blue Book. If it is jewelry or any other item you must provide an appraisal from a professional to verify that you received a reasonable value for the item.
- Sale – You must show a bill of sale
- Receipt of payment – If you were paid by check make a photocopy before you deposit it. If cash, make sure you get a copy of the signed receipt.
- Proof of deposit – You must document the money entering your account. This usually is what got you into this situation to begin with.
It can be even more difficult if you have multiple deposits. I once had a borrower that hosted a bridal shower for a friend and took in hundreds of dollars from friends for the party expenses. She was required to round up all the cancelled checks from her friends to show the lender where the money came from.
It’s all about planning! If you know you are going to buy a home or refinance then do NOT make deposits to your account that are not easily documented OR hyper document every item you deposit. Your life will be easier and your Originator will thank you!
