Large Bank Deposits

There is a new Fannie Mae underwriting rule related to large deposits. There has always been a Fannie Mae rule that made underwriters ask about a large deposit that was clearly not a paycheck deposit. And that is understandable. If someone has a $30,000 deposit on their bank statement, and their paycheck is $4,250 each pay period, then I can see asking where the $30,000 came from. And usually, the answer is that it is a gift, or a transfer from another account. All we have to do is have the client document that with the proper documents. Documenting a large deposit is known in the industry as getting a “source of funds.” But recently, it has gotten more interesting.

Fannie Mae now has a more strict interpretation of this rule.

Now if any non-payroll deposits are on a bank statement and the sum of those deposits exceeds 10% of the borrower’s monthly income, we must get a source of funds on each deposit. This is more dramatic than it first appears.

I’ll explain by illustration.

Assume that a bank statement has six deposits on it, as follows:

$16.01 DEPOSIT on June 1
$438.16 ATM DEPOSIT on June 6
$3,218.66 Direct Deposit PAYROLL on June 8
$30,000 WIRE TRANSFER, John Smith, Sr. on June 14
$1,810.00 DEPOSIT on June 28

This hypothetical borrower earns $120,000 per year in gross income let’s assume. This is $10,000 a month. Their net bi-weekly paycheck is $3,218.66 which is clearly marked on the bank statement. They got a $30,000 gift from their father. 10% of $10,000 a month in income is $1,000. Uh oh. Since there is a large deposit that exceeds 10% of their monthly gross income now we must document EACH NON-PAYROLL DEPOSIT!

Now what?

So now I would have to ask the client to recall what the $16.01 deposit was on June 1st! Who cares? Right? Isn’t that really the answer? Who in this insane industry cares?! Fannie Mae does, that is who. So now I have to ask where each of those other deposits came from, and document them. An email is not documentation. A quick letter is not allowed. The client explained the $16.01 was change found in couch cushions, the $438.16 was a refund from an auto policy that was canceled, the $30,000 was a gift, and the $1,810 was from the sale of a collection of vintage marbles. No, that explanation itself is not allowed. Proper documentation requires a paper trail, deposit slips, gift letters, copies of checks, a bill of sale, etc.

Conclusion

As the mortgage industry gets more insane I will try and continue to explain it to you. You can get my newsletter for occasional, useful pieces of information like this. In the interim, let’s all hope for a return to sanity and level-headed underwriting requirements.

It matters where your down payment comes from.