Most people, regardless of their age, gender, location, background, or any other demographic feature, are real particular about their money. Each person has their own system and methods for documenting and tracking their money coming in and their money going out. However, when it comes to preparing for a mortgage, there is one general rule that applies to everyone: leave the money alone.
Mortgage underwriting has some very specific rules. When it comes to documenting down payments and savings accounts these rules are enforced heavily. Any transaction has to be proven with proper documents. Sometimes this process can be tough for the borrower as well as the loan officer.
Here is a perfect example. Years ago I was helping a couple secure an FHA loan to buy a home. They decided to use their own money for the down payment rather than use a gift from their parents. The money they were using came from their tax return refund. Here is what happened.
We had to provide copies of the tax return to document the actual amount of the refund. We then had to get a copy of the IRS check for the refund. Copies of the bank account prior to the deposit of the refund as well as a copy of the receipt of the deposit had to be obtained. However, the borrower decided somewhere along the way to transfer the money from savings to checking. Now, we had to get copies of the checking account prior to the tax refund deposit and a copy of the transfer receipt. See how fun this can be???
Some people are wondering how all of this can be avoided, and the answer is quite simple. If money is needed for a down payment, or closing costs, or reserves then the borrower should put that money in one account and leave it there for 60 days. After the money has remained in one account for 60 days the only documentation needed by the underwriter will be the last two months statements. Neat, simple and easy to do.