The Money Is In My Account. Isn’t That Enough?

RactliffeOne of the most common misconceptions while applying for a mortgage involves bank account documentation. I can’t tell you how many times I hear “Can I just send you a screen print showing you my balance?”  And the answer is, “no”.

Lenders must document bank and investment account balances with complete statements, covering a one to two month period. Not only are we required to document that a borrower has sufficient funds to complete the purchase or refinance, but also the source of all deposits into those accounts. This is partially related to the Patriot Act, which guards against illegal money laundering. It is more about fraud detection.  As you might understand, your Realtor (or the property seller) cannot give you money toward your down payment. Unbelievably, a lot of these type shenanigans were uncovered during the past foreclosure crisis. Now, all of us good guys are paying for the sins of a few.

When you supply bank and/or investment account statements to your lender, be prepared to also provide copies of misc checks deposited, and explain why you received them. Payroll that is auto deposited into your account is recognizable. So, no extra documentation needed for them. But if you transfer money from one account to another, you’ll need to also provide the bank statements from the account you transferred from. And the same scrutiny is given to deposits there as well.

Here are a few tips if you will soon be seeking a new mortgage:

  • Do NOT deposit cash into your accounts. If for some reason you’re inclined to hoard cash under the mattress or in your safe deposit box, get this money into your bank account several months ahead of a mortgage application. Cash On Hand is not an acceptable source of funds, and could cause many problems with your loan approval.
  • Limit the transfer of funds from one account to another. I often see transfers back and forth between accounts for no apparent reason. This just makes it difficult to determine the actual documented funds available, and the paper trail more difficult to track.
  • Be prepared to provide a copy of the cancelled check you wrote for your earnest money deposit.
  • If you’re a gambler – professional or amateur, and you withdraw funds from your online gambling account, you’ll need to document where those funds came from. This could involve screen shots of the gambling site, and confirmations of funds transfers to your checking account. (If you don’t need these funds – please don’t do this.)
  • If you receive a bunch of birthday checks, or wedding present checks, deposit them well ahead of a mortgage application. Or hold them until after the mortgage process is complete. You don’t really want to have to get gift letters from all those family members and friends do you?
  • If you plan to share a vacation rental with friends, let them pay for it – and then you can reimburse them for your half. Do you really want to explain why Mary Smith wrote you a $2,400 check for their half of the rental. Too complicated, and potentially unbelievable.

These are real life examples. Sometimes our financial lives are more complicated than we realize. Just having the money in your account is not enough. And sometimes, it can be too much!  Be wiser my friends! I hope this helps.

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