What the Heck are Seasoned Funds?

Imagine this - you’ve finally found a house you love after looking for what seems like forever. Because you were in a bidding war, you went a bit above your budget so you’ll need another $5,000 for the downpayment. You parents are happy to help (not that they’re anxious for you to move out or anything) and give you the money that they’ve been keeping in their wall safe in case of an emergency. You deposit it into your account so the lender can see that you have the money you need for the downpayment. You’re all excited and grateful to your parents and you send proof of the deposit to the lender.

To your great surprise, the loan officer, let’s call him Doug, is not excited at all. He says the federal government requires you to source the funds. He needs to see where the money came from. You say, “I already told you, my parents gave me the money.” He says: prove it.

Doug tells you that he needs a letter from your parents saying they gave you the money as a gift — not a loan that needs to be paid back. Okay, no big deal, right? It even makes sense that the lender wouldn’t want you taking on additional debt.

When he gets the letter, Doug says: where did your parents get the money? You reluctantly reveal the information about the safe hidden behind the fake Monet. Doug says he need bank statements from your parents showing the money coming out of their account. You tell Doug that’s not possible. He says: then neither is your mortgage.

Messy, right? The bad news is that this kind of thing happens _all_the_time_. Money coming from other countries, other people, even your own business account, can all cause problems in the mortgage process. Money-laundering regulations require lenders to source any deposit or withdrawal larger than 50% of the qualifying gross income being used to qualify for the loan. Instead of doing the math, many lenders just ask for documentation on anything over $1,000.

The great news is that it’s so easy to avoid. When you apply for a loan, the lender will request bank statements from the previous two months. If you put any funds that you plan to use — from under the mattress, a gift, or whatever — into your account right now and don’t apply for a mortgage for at least two months, the money is considered seasoned and won’t raise any red flags with the lender. Here’s more info from Doughroller.net. See the entire Home Buyer University series here.

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