It doesn’t happen often enough in our opinion, but sometimes, money just falls into our laps. Tax returns, bonus checks, gifts, or an inheritance are just a few of the ways that unexpected money can come our way.
If you’re saving for the down payment on a new Southern Maryland home, the windfall can go along way toward getting you closer to home ownership. But it’s not that simple — that “sudden” money comes with a catch.
Lenders like things “seasoned”
Lenders are skeptical when money suddenly appears, seemingly out of nowhere. Your lender will want to see a paper trail of every cent you currently have – and expect to have in the near future.
And, your lender will ask about your down payment funds – how much you have and where it is being kept.
You’ll find that lenders are especially wary of borrowers who have taken out another loan to get those funds. It makes the borrower more of a risk, and it may also put the other lender in first place should you default on your mortgage.
Even if your down payment windfall came from a legitimate source (a big bonus at work, a tax refund, etc.), the lender will most likely ask for “seasoned” funds instead.
So, what are “seasoned” funds?
Money is considered “seasoned” if it has been in your account for a specified about of times. Many lenders insist on a 60-day seasoning period, though there are some who want to see that money in an account for 90 or more days. Then, there are some who require only a 30-day period.
Find out from your lender how seasoned your funds must be, and don’t start the loan process until that amount of time has elapsed.
You need to “source” that money, too
Where did you get the money? Be ready to answer the question and prove the source of those funds as well.
Again, the lender wants this information to make sure that you aren’t using a short-term loan or another source that may put the loan at risk. For example, if the money wasn’t saved from your income (which is easy to prove), you’ll need to offer proof that, yes, Aunt Martha died and you inherited her savings.
Taking money from an investment account to use for your down payment or closing costs?
“If you withdraw cash from an investment or retirement account (like a 401k or an IRA) that has certain restrictions on withdrawals, the underwriter will likely ask to see the terms of the withdrawal in writing,” says Brandon Cornett at QualifiedMortgage.org.
Gift money gets an extra look
In the eyes of a lender, a gift of money isn’t so simple. For money to be considered a gift, the giver has to have no expectation of being repaid. The lender will source the gift to determine who gave it to you. Most lenders require that all gift funds must come from family members.
Gift funds get a bit trickier if you’ll be using an FHA-backed loan. Borrowers with low credit scores (typically between 580 and 619) will need to make sure that at least 3.5 percent of the down payment is their own money – it can’t come in the form of a gift.
If you will be putting down 20 percent as a down payment, regardless of your score, often the entire down payment can be sourced from a gift. Make sure you know your lender’s policies on this.
You’ll need a letter from the person gifting you the money, addressed to the lender. It should include the giver’s name, address and phone number, their relationship to you, the amount of the gift, and the date on which it was given.
The letter should clearly state that the money was given as a gift and that there is no expectation of repayment.
You’ll be asked for documentation from the lender for almost every aspect of your financial life, including a certain number of bank statements. Include ALL pages of your statements, including those that are blank.
We aren’t accountants or mortgage brokers, so we urge you to consult with a professional should you have any questions about obtaining a mortgage to buy a new Southern Maryland home.
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