What Are “Large Deposits” & How Do I Have Them “Sourced?”
Making a hefty down payment on your home is a way to cut your interest costs and gain equity
in your home, right from the start. Unfortunately, in the competitive market to find just the right
home, some buyers elect to draw in additional funds to purchase their dream home. While we
would all be so fortunate as to drop enough down payment to really cut down that monthly
mortgage payment, some buyers will borrow funds with other loans or even from others. While it
might seem harmless at first, borrowing the money to make a down payment can make a buyer
appear able to handle a mortgage that they otherwise could not.
A mortgage lender is ultimately making a responsible bet that the buyer can repay his or her
mortgage, which is both a function of the buyer’s assets and income. Borrowing money from a
relative or using another loan may end up costing you a mortgage if the lender determines that
the amount will skew the calculations.
Learning About “Large Deposits”
Lenders are constantly evolving when it comes to determining income and liabilities. This
includes an indication of borrowed funds. “Large deposits” are deposits into your account(s) that
cross a certain threshold and therefore are flagged as a potential for borrowed funds. In most
cases, the threshold is any deposit that equals or exceeds 25% of your monthly income.
In other words, if you make $4,000 per month, a deposit of $1,000 is considered a large deposit.
Obviously, even larger amounts are also considered large deposits.
“Sourcing” Large Deposits
The source and nature of the large deposit will matter. For example, if you receive a gift from a
wealthy family member on a yearly basis, consider yourself fortunate. It also means that you can
document that this large deposit happened to coincide with your home search and is not an
attempt to get you into a nicer home than you can afford.
Similarly, sometimes good fortune strikes and you happen to reap some unexpected windfall at
just the right time.
Either way, if you are working with a lender and this comes up on the radar in your bank
statement, then the lender will likely ask for the source of the money. This is what it means when
you have all of your large deposits “sourced.” You are simply explaining where the money
comes from, and it may require written statements or further documentation to satisfy the lender.
As an example, the Federal Housing Administration(FHA), in its underwriting procedures,
requires documentation for:
● obtain an explanation and documentation for recent large deposits in excess of
2% of the property sales price, and
● verify that any recent debts were not incurred to obtain part, or all, of the required
cash investment on the property being purchased.
So in our example above, the FHA would require documentation for any deposit of $2,000 or
more if the home sale price was $100,000. The large deposit threshold for a $200,000 loan
would be $4,000 and so on.
The good news is that these requirements used to be more stringent and have relaxed
somewhat over the years. The bad news is that there are still lenders who like to ask too many
questions and can make your mortgage experience a little less fun.
If you’re in the market for a home, then sourcing a large deposit is not something that should
keep you awake at night. If you did happen to receive a large deposit, then go ahead and simply
gather the documentation ahead of time. It will save you time and money later on when the time
comes to undergo the mortgage process.
Range Lending is known for working with buyers to deliver rapid closing dates with an overall
simple mortgage experience. If you are still worried about a large deposit, then speak with one
of our brokers today to see what you may need to provide the right documentation. We are
ready to answer any of your mortgage questions and help move on to your next home or
refinance!
