How to Avoid a Major Mortgage Underwriting Obstacle

By
Real Estate Mortgage Broker

 

Mortgage underwriting after the credit crisis of 2008 and 2009 is like navigating a downtown Boston St. after a harsh New England winter, it's full of pot holes. These underwriting pot holes can deflate your hopes of an on time closing if you don't know have the vision to see what lies ahead. The most frustrating of these obstacles areincomplete bank statements and sourcing deposits in your checking and savings account. A required underwriting condition with most purchase loans, whether that's conventional or government, is to provide the last 2 months worth of bank statements.

When providing these statements, it's very important that these are full bank statements that include your

  • NAME
  • ADDRESS
  • FULL ACCOUNT NUMBER (no partial #s or Xs)
  • ALL PAGES of the statement. (if it says 1 of 7, provide all 7)

It is also important that we evaluate the bank statements together prior to signing the purchase and sales agreement to make sure that the down payment money and any deposits can be "sourced".

What does it mean to "source" a deposit?

Essentially to source a deposit means to create a paper trail for that deposit. As a client/loan officer team, we have to be able to clearly document where that money came from. The banks need to make sure that these are legal sources of money as well as make sure that you have adaquet down payment funds. When an underwriter analyzes a complete bank statement they are going to pay special attention to the deposits into your account that are NOT direct deposit. This includes; transfers from other accounts, check deposits and cash deposits. If these are larger amounts, meaning over $400, or they total over $1,000 in one 30 day period we will need to "source" them. The list below will provide you with a guide of what is required for each of these 3 types of deposits.

Transfers: For a transfer we need to follow the trail of where it came from. This would include providing documentation of source of the tranfer. If it came from another account we would need a full statment from that account. Same would be true if it came from a brokerage account.

Check Deposits: For a check deposit, underwriting will require a copy of the check and a brief explanation as to what that check is for. They will then determine if that is an acceptable source.

Cash Deposits: For a cash deposit, underwriting will need a copy of the deposit slip and an explanation as to where the cash came from.

IMPORTANT TO REMEMBER - Most underwriting guidelines will not allow you to use cash deposits to count towards your down payment. For example: if you have $5,000 in your checking account and $2,000 of that money is from a cash or check deposit that cannot be traced back to employment income with a copy of a pay-stub, or rental income with a copy of a rent receipt, the underwriters can back that money out of their calculations. In other words, that $5,000 is now only $3,000 because that check or cash deposit cannot be "sourced".

Never make a large deposit or transfer into your account while your loan is in underwriting without first discussing it with your mortgage professional.

As you can see it is very important to be up front with your mortgage professional about what is included on bank statements. By taking the time to review the paperwork throughly at the beginning of hte process you will save time, aggrevation, and improve your chances of a successful on time closing.

 

 

 

 

Posted by

 

John B. Saari


 

Direct Cell: 508-740-7442

Secure Fax: 781-503-1478

The QR Code To My Published Mortgage Application freemortgagebuddy

 

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Location:
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Tags:
mortgage underwriting
deposits
sourcing deposits
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Comments 7 New Comment

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Rainmaker
233,568
John M. Scott
Broker / Owner San Francisco Real Estate
BRE # 01442690, Scott Keys Properties

What about gift deposits John. Relatives who are trying to help?

December 29, 2011 09:05 PM
Rainmaker
532,367
Gretchen & Mel Ahrens
ColumbiaGorgeFSBO.com

Your post should be required reading for anyone about to apply for a home loan. Good info for a lot of folks here.

Gretchen

December 29, 2011 09:20 PM
Rainmaker
598,544
Donne Knudsen
CalState Realty Services
Los Angeles & Ventura Counties in CA

John - Great post outlining sourcing funds to close.  This can be a deal breaker, which is why borrowers and MLOs need to address these issues from the get-go.  I can't tell you how many times I've had to tell someone that I can't pre-approve them yet because of unsourced funds.  With a little seasoning, these issues can be resolved and this is a great lesson that the borrowers won't forget.

December 29, 2011 10:54 PM
Rainmaker
1,074,016
John Pusa
Your All Time Realtor With Exceptional Service
Sellstate Pacific Realty

John - Thank you for sharing detailed quality information on how to avoid a major mortgage underwriting obstacle.

December 29, 2011 11:37 PM
Rainmaker
915,897
Conrad Allen
Webster, Ma, Realtor
Re/Max Professional Asociates

Hi John - I am trying to be difficult but why the difference between a mortgage company and the local credit union?  There is so much more documentation needed with the mortgage company.

December 30, 2011 06:53 AM
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John Saari

"The Mortgage Buddy"
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Additional Information

I decided to start writing this blog to be an education resource to my referral partners and my clients. We live in a new world of mortgage lending in which we need to be up to date on the changing underwriting guidlines and mortgage products offered. It's through these updates that we will all be able to provide our clients with the customer service they derserve and expect. It's my belief that this industry insight is what will take our business to the next level. Education = Confidence