Mortgage Blog

Funds for closing when you’re buying a home

Whenever you are buying a home utilizing a mortgage, your lender is going to need to know where your funds that will be used for the down payment and closing costs are coming from. And in most cases, they will want the funds to be “seasoned” (statements showing the funds have been in your account for a two month minimum).

A lender wants assurance that the borrower has enough funds for closing and ideally, enough savings when all is said and done after closing, to have a cushion (2-6 months of your proposed mortgage payment aka “reserves”). Typically a lender is looking for 2 months of asset account statements. If large deposits are shown on the statements, the lender (or underwriter) may require to have the large deposits explained and possibly documented. Many people have their paychecks go into their bank account and, like the tide, out goes the money. Whatever is shown as ending balance is what the lender will use for your loan application and approval purposes.

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Depending on the mortgage program you’re utilizing for your financing, different types of funds for closing may or may not be acceptable. Here is an example of some traditional funds allowable for closing:

• Checking and savings accounts
• 401(k)s and other retirement accounts
• Stocks, Bonds, Mutual Funds, etc.
• Income Tax Refund
• Seller closing cost credit (varies depending on program and loan to value)
• Gifts from family (depending on loan program)
• Proceeds from the sale of property (real estate or other)
• Inheritance
• Sale of personal property

Cash on hand (also referred to as “mattress money”) is a no-no. If you’re planning on buying a home in the next 3-6 months, you’ll want to get your dough into a bank account where a “paper trail” can be established of your funds.

With today’s automated underwriting and all of the available mortgage programs, more or less documentation may be required from the lender. The above list is only a sample. The requirements for your personal financing may be different. It’s important that regardless of what funds you’re planning on using for your down payment and closing costs, that you discuss it with your Mortgage Professional.