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Ask the Underwriter: Documenting Funds to Close for FHA Loans



I'm making it easier for everyone to understand how the mortgage process works! As part of my brand new "Ask the Underwriter" feature, I'll be posting your questions and my answers each week. Want to see your question featured? Submit a question in the comments section of this post, tweet at us, or post on Reddit.


You’ve finally found the perfect house, you’ve saved up money for closing costs and the down payment, you’ve submitted your bank statements, and now the underwriter wants to know where the two large deposits on your statement came from… but the money came from under your mattress! How do you explain this?

Question:

I am a first time home buyer, using an FHA Loan to purchase my home.

For the down payment and closing cost, I am using my 401K and money I saved up in cash years ago. I had my dad hold on to for me and he gave it back to me two months ago and I have deposited it into my savings. Would a letter from me explaining the where the funds came from work? I saved it up during my first marriage.

If it's easier, my dad is willing to write a statement saying that he gifted the money to me and that it does not need to be paid back.

What's on my bank statement: End of May: 401k loan deposit $6,900. Mid June: deposit $6,000.

Answer:

There are two ways that you can go about sourcing these funds:

1. The easiest way is to wait until your July statement comes out to apply for a loan. You will be asked to supply one month's worth of bank statements to verify assets. At that time you would provide your July statement and you wouldn't have to explain the deposit in June at all. *Note that the July statement must reflect the ending balance for June.

Your lender may ask you for two months of bank statements (because this is what was required until recently and most people do not keep up with guidelines) or may want to order a Verification of Deposit from your bank, but tell them to refer to HUD Handbook 400.1 4iii A3 (b) for the guideline or just tell them to look on Page 223 of the Handbook Here.

The guideline states: "If a VOD is not obtained, a statement showing the previous month’s ending balance for the most recent month is required. If the previous month’s balance is not shown, the Mortgagee must obtain statement(s) for the most recent two months."

2. If you've already applied for the mortgage and the lender is asking you for June's statement you can have your father sign a gift letter saying he gifted you the money and he expects no form of repayment. Your lender will have a standard FHA Gift Letter for him to sign. Additionally, you will need the donor’s (your father) bank statement showing the withdrawal and evidence of the deposit into the Borrower’s (your) account.

If you've already applied for the mortgage and the lender is asking you for June's statement you can have your father sign a gift letter saying he gifted you the money and he expects no form of repayment. Your lender will have a standard FHA Gift Letter for him to sign. Additionally, you will need the donor’s (your father) bank statement showing the withdrawal and evidence of the deposit into the Borrower’s (your) account.

FHA Guideline regarding required documentation for Gifts:

Required Documentation - The Mortgagee must obtain a gift letter signed and dated by the donor and Borrower that includes the following: -the donor’s name, address, and telephone number; - the donor’s relationship to the Borrower; - the dollar amount of the gift; and - a statement that no repayment is required.

Documenting the Transfer of Gifts The Mortgagee must verify and document the transfer of gift funds from the donor to the Borrower in accordance with the requirements below.

a. If the gift funds have been verified in the Borrower’s account, obtain the donor’s bank statement showing the withdrawal and evidence of the deposit into the Borrower’s account. OR b. If the gift funds are not verified in the Borrower’s account, obtain the certified check or money order or cashier’s check or wire transfer or other official check, and a bank statement showing the withdrawal from the donor’s account.

Let me know if this answers your question! If you have other questions about FHA loans, check out this page.

Enjoy your new home!

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Did this help? Find more answers to underwriting questions here.

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