Sourcing Assets for a down payment is often the biggest hassle in buying a home. Basically, you must prove that the money you use is actually yours, and not from an undisclosed loan that could possibly have a monthly payment requirement. This is called “sourcing assets”. This rule applies not only to your down payment, closing costs and earnest money funds, but also the money that you may need to pay off a debt in order to get your debt to income within acceptable margins or to pay off a lien or judgment.
With a loan submission, you are required to provide two months of bank statements. The first thing to do is to look at the starting balance of the first statement, and the ending balance of the last statement. If your starting balance is $25,000 and your ending balance is $25,000 and the only deposits in this account are your typical payroll deposits, then you have $25,000 worth of sourced income that is approved to spend towards purchasing a home. The more common scenario is the beginning balance is $1000 in the first month, with the ending balance of the last month at $25,000. In this case, you are required to show were the extra $24,000 came from. If you sold a home, then you’ll simply need to show documentation of that sale. If you took money from a 401k, then you have to document that transfer and provide documentation that outlined the repayment. If you sold a boat, then you have to document that with a Bill of Sale (and perhaps even document it’s worth) and a copy of the check. If you transferred money from a savings account, then you’ll have to provide 2 months of statements from that account. In the end, you simply need to provide a clear paper trail so that an underwriter reviewing your loan file can easily determine where your funds came from.
The easiest method is to consolidate your assets into one account and let them sit (or “season”) for 2 months, then go out and make an offer on a home. If this is not an option, just know that you’ll have to provide documentation, and sourcing your assets will be a little extra work.