Having enough money in the bank is an important part of buying a home, but during the mortgage process, the amount in your account may not be the only consideration. In certain situations, lenders may also need to understand where funds came from. That can surprise buyers who assume that once money reaches their account, its history no longer matters.
Mortgage Funds May Need to Be Documented
During the mortgage process, buyers may provide bank or asset statements showing money available for the transaction.
If an account contains certain recent deposits that are not easily explained by the documentation already provided, additional information may be requested.
The purpose is not to question every dollar a buyer spends or receives. Mortgage guidelines may require lenders to verify certain funds being used in connection with the purchase.
Moving Money Can Make Things More Complicated
Buyers sometimes reorganize their finances before purchasing a home.
They may transfer money between checking and savings accounts, move funds from an investment account, deposit proceeds from selling personal property, or receive money from another person.
Even when the funds are legitimate, multiple transfers can create more documentation because the movement of money may need to be traced.
Keeping records can make that process considerably easier.
Gifts Have Their Own Requirements
Some buyers receive financial assistance from an eligible family member or another permitted source.
Depending on the mortgage program, gift funds may be allowed for some or all of the money needed for the transaction. However, there can be documentation requirements regarding the gift, donor, transfer, and source of funds.
Do not assume that depositing a large check into your account is all that is required.
Avoid Unnecessary Financial Shuffling
Before closing, simplicity can be valuable.
If you are considering moving a large amount of money, making an unusual deposit, changing bank accounts, or receiving funds from someone else, ask your mortgage professional what documentation may be needed.
Save statements, transaction confirmations, deposit records, and other relevant documentation rather than assuming you will never need them.
Money being available and money being properly documented are not always the same thing during a mortgage transaction.
You do not need to stop using your bank accounts normally while buying a home. But understanding that certain funds may require a clear paper trail can help you avoid scrambling for documentation when closing day is getting close.
Getting a new job with a higher salary sounds like good financial news, especially when you are preparing to buy a home. But if the change happens while you are applying for a mortgage, the timing can create additional questions. Mortgage qualification is not based solely on how much you earn. Lenders also evaluate the stability, history, and documentation of the income being used to qualify.