Deposits are part of every loan file and require a full paper trail. Impromper documentation can render an account (and the funds in it) ineligible so let's walk through proper documentation. It's best to avoid large deposits and moving money between accounts for several months before purchasing, and while in-contract, otherwise, let's talk about the best way to handle one. Below, we'll cover:

  • Large deposits
  • Transfers between accounts
  • 401k or investment liquidation
  • Gift funds
  • Earnest money/ good faith deposits into escrow

A full paper trail includes:

  • Two months of statements from 1) account(s) money is coming from and 2) account money is going into
  • From all accounts, a transaction history from the date of the last statement to present showing the transfer. Any additional large deposits that show up need to be documented in the same way.

What are lenders looking for?

1) There isn’t a personal loan to be counted in debt ratio calculations and 2) funds are from a legal source

Printing transaction histories

Screen shots or photos are NOT accepted so print to PDF and save or print and scan. 'Scannable' is a great app. Files need all of the below detail or we will request an update:

  1. URL: Print with the full URL displayed
  2. Account identification: Full account number or last four digits and borrower name (if available)
  3. All pages: If one page shows 1 of 3, include 2/3 and 3/3
  4. Show all transactions from the date of the last statement to present (no more than a month earlier)

Transaction histories can’t be accepted in place of monthly/ quarterly statements

Documenting Specific Transactions

Earnest money/ good faith deposit

  • Provide a transaction history after the funds have cleared and showing new balance
  • If paid through check, provide a copy of the cleared check

401k or investment liquidations

Provide two months of statements for all accounts: 401K, investment account, and bank account the funds are deposited into and transaction histories for:

  1. 401k after loan has exited account and showing new balance or investment account after liquidation and funds have cleared account and showing new balance
  2. Bank account after funds have been deposited and cleared (not pending) and showing new balance
  3. If funds were wired and transaction history shows where they came from (ie 401k account name or investment company name), we should be set
  4. If funds were sent in a check, also provide a copy of the cleared, deposited check

Gift funds

Completing the gift letter

  • Complete all fields
  • Wire funds directly into escrow. Funds deposited to the recipient's account first and then into escrow require more documentation (below)
  • Ensure the name on the gift letter matches the name on the donor bank account exactly
  • Be prepared to show the bank statement of the donor account. Large deposits on this statement have to be documented

Documenting gifts deposited into borrower's account (into escrow is preferred)

  • Provide a transaction history after the funds have been deposited and cleared (not pending) and showing new balance
  • Provide a copy of the deposited check
  • Bank statement and transaction history from the donor account showing the funds clearing
  • Donor’s name on check or wire should match the gift letter exactly

Documenting large deposits

A large deposit is greater than 30% of your monthly income.

  • Checks – Include a copy of the cleared check from online account
  • Transfer – Provide the statement for the account the money came from, showing the money clearing. Large deposits on this statement will also need to be documented
  • Cash – If possible, avoid cash deposits because they are difficult to papertrail
  • If it was money for services provided, show the invoice for the services
  • A letter from the person giving the check may be required

This article provides great context for documenting assets and large deposits --

Be Careful with Large Bank Deposits as you Apply for a Mortgage

by Tim Lucas August 5, 2014

Large bank deposits and your mortgage application

Common sense says that every penny you can show in a bank account helps you qualify for a mortgage.

But sometimes the opposite is true. Depositing money into an account from a sold car or from that jar under your bed can actually sink your chances of being approved for your home purchase or refinance.

Most home loan applicants inadvertently have a large deposit showing on the bank statement they give to their lender. But few expect the hassle that awaits them when their lender asks them to prove where it came from.

What Is a Large Deposit?

A “large deposit” is any significant addition of money via cash, checks, or electronic transfer into your checking, savings, or other asset account.

But not all large deposits are created equal. The lender won’t ask for more documentation on deposits from obvious sources, such as income from your employer or an IRS tax refund. Your bank statement will clearly show the source of the deposit, such as “Direct Deposit: ABC Warehouse.”

But if your brother paid back the $1,000 you lent him for last winter’s ski trip, your bank statement will state something like “ATM Deposit.” Your lender will require proof of the source.

Why Do Lenders Care What I Deposit Into My Own Account?

It’s not that your underwriter is particularly nosy. As part of their due diligence, underwriters make sure you didn’t open another credit account that jeopardizes your loan qualification. An unexplained deposit can indicate that you opened a loan or took a cash advance and deposited the proceeds into your account.

There may be strings attached to this newly-deposited money. If you opened a new loan or credit account, there will be a monthly payment associated with it. You’ll need to qualify for the mortgage with that payment included in your debt ratios. And some loan programs don’t allow you to borrow any portion of the down payment.

Prepare to Prove It

Your lender may ask for a number of things to prove that your large deposit is not a loan. A canceled check will be required. In addition, expect to get a letter from anyone who gave you money for any reason. If you sold a big-ticket item such as a car, you’ll need the ad you used to sell it, as well as the report of sale. You also may need a third party estimate of value, such as a Kelly Blue Book value of a vehicle.

If your employer doesn’t use direct deposit, but pays you with a physical check, hang on to all of your pay stubs. You’ll most likely have to provide every pay stub that’s been deposited into the bank statements you provide to the lender.

The hardest type of deposit to prove is “mattress money,” i.e. cash on hand that was never deposited into a checking or savings account. Think twice and ask your loan professional before depositing any amount of cash. If your lender allows “mattress money” at all (which it may not), expect to jump through very tight hoops to prove its source.

How Much Can I Deposit?

There’s no simple answer to how much the lender will consider a large deposit. Underwriters look at your overall financial situation. If you make $100,000 per year and have a ton of cash saved, the underwriter may not ask about a $500 deposit.

But if you have just enough in your checking account to cover the down payment, expect the lender to ask about any questionable deposits, even down to $100 or less.

What to Do if Your Bank Statement Shows a Large Deposit

If you already have a large deposit on your bank statement, make sure it’s from an eligible source. If it is a loan, be up front about it. Don’t try to hide it. That’s fraud, and your lender will probably discover it anyway.

If you have a deposit that’s above-board but hard to document, ask your loan officer if you qualify for the loan without showing that particular bank statement. Or wait until your bank issues a newer statement and remove older statements that show large deposits.

Of course, the best way to avoid hassling with a large deposit is to refrain from putting any hard-to document funds into any accounts in the months prior to your loan application. The lender will assume that any undocumented large deposit is from an ineligible source, and can deny your loan because of it.

With a little foresight and planning, you’ll save yourself a big headache and ensure your home purchase or refinance application meets smooth sailing.