Something you may not necessarily think about when planning to purchase new property is proving your down payment. You read that correctly; not only do you have to come up with the money, you also have to prove where that money came from. Now, why would the lender care where the money for the down payment is coming from? Well, there are quite a few reasons.
The first reason is anti-money laundering; the bank has the right to ask for appropriate documentation to prove that the money you are using isn’t laundered funds. Typically, the bank will request a 90-day history from the account in which you have the down payment funds. If you have large deposits into your account, you will need explanations for those deposits. The lender’s underwriters will go through all the provided documents with a fine-tooth comb. They need to make sure everything is legitimate.
The lender will also need to know if the down payment is coming from borrowed money. The lender needs to know because if the funds were borrowed, that would have to be included in their liabilities and used in the calculations of the debt service ratios. This could affect your ability to qualify for a mortgage. Whether you borrow the money from the bank or a family member, the lender will need all the details, regardless of how little the monthly repayments might be. The bank must be sure that they are not lending money to someone who can’t afford to make all payments. They use your income against all your liabilities to see if your ratios will show any risk.
All lenders have their own set of required documents, and they will provide you with any necessary forms. All documents your broker submits to the lender must be complete and legible. There cannot be any redacted documents; all redacted documents will be rejected. The lender will also not accept statements that are missing pages. If you submit your 90-day history of bank statements, you must submit all numbered pages, even if the last page is “blank.” If the down payment comes from a gift, the lender requires a signed gift letter form. The lender will also need to see statements showing the funds already in the borrower’s account. At times the lender will require to see the bank statements from the donor as well.
The reality is that the more accounts you have, the more documents you will need to provide. Most people have more than one account, and money is being transferred in and out of accounts; the underwriters will need to cross-reference all the accounts thoroughly. The underwriter may need further clarification on transactions and may require additional documentation to support deposits, for example, invoices for large deposits.
This might not be a common topic, but it is an essential part of the transaction. Gathering the documents for the down payment is something you should start at the beginning of the process to limit the back-and-forth with the lender. Here at DLC NasaKasa, we will help you organize your down payment documents and package them for submission to the lender.