There are various issues that can hurt your loan approval chance or may delay the loan approval process. If you make undocumented cash deposits, it may lead to rejection of the loan application or may delay the process. If you take out a mortgage loan, you have to make a certain percentage of the purchase price of the house as down payment. The greater is the amount of down payment, the higher is the chance of getting approved for a mortgage loan at better rates. But, the down payment amount that you make should come from a legitimate source. However, in case you fail to provide satisfactory explanations of the source of the funds, your loan application may be rejected or delayed.
Here, it is to be noted that your bank statements do not prove that the sources of the funds are appropriate. Your bank statements only show that you have the required funds ready with you but these do not guarantee that these funds have come from legitimate sources. Before offering you a loan, lender examines carefully whether or not the down payment amount has come from appropriate sources. Here, in order to assist the home buyers, we discuss about some situations where the home buyers have to provide necessary and unquestionable explanations of their down payment funds.
- In case the down payment amount that you are making is more than 25% of your monthly income, then you have to provide necessary letter of explanation which satisfactorily explains the sources of the funds, along with documents.
- If you are making a cash deposit which is less than 25% of your monthly income, then also lender may ask you to explain the sources of the funds. But, here you may not be required to provide documents.
- If you receive money in the form of a gift and use the proceeds for making down payment, then you have to provide necessary documents. The party who is gifting the money to you should write an explanatory letter which explains the source of the funds. The person who is gifting you the money would be under same scrutiny like you.
- If you receive money from other employment or from other sources of income, then the funds can't be used for taking out a mortgage loan with immediate effect. It should first cross the seasoning period. Seasoning period is usually of 60 days. Once it crosses the seasoning period, then the fund can be used for taking out a mortgage loan.
So the proper explanation of the down payment funds is very important to get the mortgage approval. Make sure that you can satisfactorily explain the sources of your funds. Always keep in mind that before offering you a mortgage loan, the lender will also verify the sources of your down payment funds. In case they don't find the the satisfactory explanations behind the source of funds, your loan application may be rejected or it may be delayed.