This Bank Statement Mistake Will Kill Your Loan (And The Trick To Fix It)

Certified Mortgage Advisor
NMLS 1701021
Published 
December 15, 2021

Why can't you use your money?

I hate to bring it to you, but you can not use whatever money you want for your down payment and closing costs. In fact, when you get a mortgage anti-money laundering, laws require that lenders verify any large deposits in your bank account. So for a lot of people, if they can't prove why they have a large deposit or if they can't explain why there's a large amount of money that got deposited into the bank account. It can kill their loan and they won't be able to close on a home.

Trick to fix

So that cash that you've been saving, maybe under your mattress over a period of time, you would likely can't use that to close on a home without this trick. So I'm going to show you a strategy, a plan that you can put in place that is both suggested and verified by mortgage underwriters that you can use to make it easy to use, whatever money you want when you want to buy a home.

Two months or 60 days of bank statements

So what ends up happening when you apply for a mortgage, a lender then needs to verify the amount of money you have with bank statements. Usually they ask for two months, 60 days worth of bank statements to see that you have that money.

How much money do you need?

So the first thing that they need to verify is that you have the money. If it's going to cost you $15,000, total for down payment and closing costs to buy a home, they need to be able to see a bank account that has $15,000 at minimum in there. They also need to see a two month history of 60 day history of that bank statement to make sure it came from an acceptable source.

Should not laundered or borrowed

So then the more they're going to do is review the transaction or the transaction statement. So your bank statement, make sure it's not laundered or borrowed. So they're going to look through line by line and see if there are any large deposits into your account that they would either flag as a, Hey, maybe we need to look in this a little bit and the sooner would be called an unusual or a large deposit. So just an abnormal sum of money that comes in that's not your payroll that they need to check for.

Patriot Act

The reason why they check for money laundering is because of the Patriot Act. After 911, the Patriot Act came in and said, if we have access to bank accounts, we're going to check to make sure that there's no money laundering activity happening.

Can we use credit card?

They also don't want the fund to be funds to be borrowed. So you can't just use a credit card for your down payment lenders don't allow you to do that.

Lenders will review your transaction

Now, one thing to note here is that the lender is going to be looking at your transactions in your bank statement. Looking through that, seeing if there are any large deposits. But your lender doesn't really care about what you're spending your money on. They don't care that I go to Chipotle pretty much every day. They don't care that you went to Speedway every other day. And sometimes it's funny, there's the loan officer here in our office where our client was like, you just want to see how much money I spent on sex toys. And it's like, well, I didn't, but now I'm curious. Your loan officer and your lender don't really care about what you're spending your money on. They want to see any large deposits that they need to ask questions about, to be able to basically get a paper trail for them.

Acceptable Source

Also, they want to make sure that those, the money that you have you're closing for down payment and closing costs come from what's called an acceptable source.

What the underwriter is doing

We're going to ask these two questions first through when they're looking through a bank statement, is it an unusual or a large deposit. Then if it is, they're going to ask, is it from an acceptable source? Those are the two things that they're looking at here to see if they're going to question the deposit in your bank account.

You need to prove where that money comes from

And if they question it, we need to be able to prove it with a paper trail. Otherwise you will not be able to use those funds. As your down payment or your closing costs, you have to find another way to come up with the money, or you will not be able to use that loan to close. So here is a chart based on the loan that you're using and what is considered a large deposit because it changes between conventional FHA, VA and USDA loans.

Conventional needs to be documented

So for Fannie Mae and Freddie Mac, which both are conventional types of loans, it says if a single deposit exceeds 50% of the total monthly qualifying income, then it has to be documented. So for conventional loans, if it's higher than 50% of the income that you're using on your loan, then it has to be documented.

For FHA

Recent individual deposits more than 1% of the property adjusted value. Basically, they're saying that the purchase price minus any closing cost credits, or if the property value appraised is lower.

For VA

VA doesn't have any guidelines on this. So just expect if you have any abnormal deposits that they're going to question.

For USDA

USDA says, investigate all deposits on the accounting state account statements that are not attributed to wages or earnings. So with VA and USDA expect a little bit more. So then that brings us to the question, what is acceptable and what is unacceptable.

Acceptable

So what is acceptable is commonly approved. That's often why see, gets through no problem. Unacceptable is commonly denied. Some lenders might have different things where they will approve those sources. But for most lenders, these are the ones that I see are commonly denied.

Payroll

So on the acceptable side, payroll, super easy. Payroll is usually never questioned. They can see your company name in there. And then that is perfectly fine as a deposit in your account. That's what most people have as large deposits is their payroll.

Gift from relatives

Another would be a gift from a relative. So, if you got a gift from, let's see your parents for the down payment, that's perfectly acceptable. As long as it is documented, according to your lender standards.

Stock sale

If you sell any stock, you can use that for a down payment or closing costs.

Tax return

Extremely common. You can absolutely use that for your down payment and closing costs.

Documented sale of a personal item

So let's say you sold your car. You can use the money that you got from that sale. As long as the sale was documented.

Money from the sale of the home

So if you just sold a home, you got, you got a check for that. You can use that.

HELOC proceeds

Home Equity Line of Credit, you can use that as well.

Inheritance settlement, 401k loan, or withdrawal

you absolutely can use those for your down payment closing costs. Those are acceptable sources of funds.

Unacceptable

So let's move on to what is unacceptable.

Cash on hand

The biggest one that catches most people is cash on hand. So if you have cash that you've been seeing. Some of that kind of money that's been sitting on our mattress or it's in a safe somewhere or wherever you have it, most of the time you cannot use that cash.

And I see people all the time, they want to take cash deposited into their bank account. But then the underwriter says, where did $5,000 come from? And they say, oh, I've just been saving it over the past few months, or couple of years, whatever. In the underwriting year, you can't use that because they cannot source where it came from. You cannot source cash. Some lenders do have a way around this. However, most do not. So I wouldn't anticipate it.

Credit card cash withdrawal

Another one is you cannot use credit card cash withdrawals. Sometimes I see people saying like, if you can't afford down payment, just put on. You can't, it's not a thing that you can do Sonics available source unsecured, personal loans. So if you've got a cash advance, you can not use it.

Money from illegal activity

Then, of course, money for illegal activity. Shouldn't even have to say it, but if you're pulling the nose on kindness, you can't do that, unfortunately. I'm sorry.

Seasoning Plan

So here is your seasoning plan. Seasoning is just the word used for when we put money into a bank account and we let it sit there for a little bit it becomes seasoned. So here's how this works is a three-step plan.

Add money to your bank account

Number one is they're going to add money to your bank account. So in this situation, let's say we have $5,000 in cash. I can take that money, put it into my bank account today.

Wait at least 60 days

Then I can wait for at least 60. After that time period is up, the money has been seasoned. So we will now be able to use transaction history, statements, and bank statements to then show only 60 days to the lender because most lenders only need 60 days worth of bank statements.

Use transaction history

So we can pull together bank statements, plus a transaction summary to show them a full 60 days. Because if we're in the middle of the month right now, we don't have a transaction. We don't have a bank statement for this month, so we need to pull the prior 60 days.  That was where our large deposit was. We can actually use a bank statement plus a transaction history to make up those in-between bank statements, to be able to show the 60 days without showing the deposit.

Keep in mind

One thing you want to keep in mind here is that the funds won't be questioned unless seen. So if you send a statement to an underwriter that has that cash deposit in there, even if it's older than 60 days, they're still a lot of questioning, and don't have to accept it as an acceptable source of your down payment and closing costs.

Transaction history

Sometimes people get confused about bank statements and transaction history. Transaction history is where you would go to your bank. You can usually do this online, so you can pull up your bank account online and usually print the history of what's going on in your bank account. You just wanna make sure it's still has all your bank account information, like your account, number, your name, address, all of that listed on there.

Also, this is what the lender would be looking at to be able to see the 60 days. The bank statement is what you get once every month from your bank. That would then tell you what happened just over that month period. So we would use these two documents to only show the 60 days.

Recap

So just a quick recap of this plan, you can add, basically any money here that you wouldn't normally be able to source wait 60 days, and then it is seasoned. Since it was already in their account and wasn't deposited in the most recent 60 days, and it wasn't seen by the underwriter. It is not questioned. The money that happened to be in your account before the 60 day period does not get questioned.

However, within the 60 day period, it will get questioned if there's a large deposit in there.

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