One underwriting guideline that could be viewed as a thorn in the side of mortgage consumers, as well as mortgage employees, was a guideline that stated we have to document where all non-payroll deposits came from. Imagine having to explain and document every little deposit whether it was a repayment from a friend on a personal loan, a family member giving you a small amount of money to help pay for movers, an insurance refund check from a canceled auto policy, etc.
It was torturous, and maybe some of you have experienced this, to have to explain and paper trail all non-payroll deposits. The good news is that you no longer have to document small deposits.
However, any deposit that is greater than 50% of a borrower’s monthly income must be explained and documented.
I got a loan for myself once, and my own underwriter said I had to document a recent $248 deposit, and I had no idea what it was from. After doing some research, I realized it was a refund from a canceled auto policy, which I had to write a letter about, and produce a copy of the letter and check that my insurer sent me to document. This was an unreal amount of paperwork and hassle to me, for something that was truly inconsequential to the creditworthiness of the loan.
I understand in general why there is a need to document large deposits, to ensure that a mortgage borrower has not borrowed money from an unacceptable source for their down payment, but the small deposits were really not necessary, and I for one am thankful that some common sense seems to be coming back to the industry’s guidelines.