How to prepare for your down payment verification

When you’re ready to buy a home, one of the most critical steps is securing a mortgage. But before your lender gives the green light, they’ll need to verify that your down payment funds are legitimate and well-documented! This part of the process can be a bit daunting, especially if you’re not properly prepared for it. To help you avoid delays and stress, let’s break down what you need to know about your down payment verification.

Why lenders care about your financial history

Mortgage lenders are meticulous when it comes to verifying where your down payment money comes from. They want to ensure that the money is yours and that it’s not coming from an unverified or risky source. As they review your account statements, lenders will flag any large deposits and ask for supporting documents. What qualifies as a large deposit can vary depending on the lender, but anything over $2,000 might raise a red flag. The more transparent and well-documented your financial history, the smoother the mortgage approval process will be.

The need for documentation

Every dollar that goes into your down payment needs to be traceable. This isn’t just for conventional mortgages, either. Even if you’re going for an insured mortgage, the requirements are similar. Lenders need to see a clear trail of where your money is coming from, and any untraceable funds can create delays or even jeopardize your loan approval.

Non-employment related funds, like gifts from family members or money from selling assets, require special attention. For example, if a relative gives you money to help with the down payment, you’ll need to provide a gift letter and possibly bank statements from the giver, proving that the money is indeed a gift and not a loan. Similarly, if you sold a car to fund your down payment, you’ll need to show the sale agreement and the deposit into your account.

Common pitfalls to avoid

The mortgage process, and down payment verification, can become complicated if you’re not careful with your accounts. Here are a few common issues that can create headaches for home buyers.

Frequent transfers between accounts

Some people manage multiple accounts across different banks, transferring money to increase interest or avoid fees. While this might make sense for your day-to-day finances, it can complicate the mortgage process. Every transfer needs to be documented and explained, which can add time and stress to your mortgage approval. Lenders might also get concerned about large or frequent transfers, thinking they could be attempts to obscure the source of funds.

Multiple borrowers and multiple accounts

If you’re buying a home with someone else, such as a spouse or partner, things naturally become more complex. Each borrower’s accounts must be reviewed, and any transfers between the two must be traced. This means more documentation and more opportunities for issues to arise if the financial history isn’t clear.

Sparse documentation for investment accounts

Investment accounts can present a unique challenge because they often don’t generate regular statements. If your down payment is tied up in stocks, bonds, or other investments, be prepared to provide documentation that may not be as readily available as with a regular checking or savings account. This might include statements from the past three or six months, as well as detailed records of any transactions within those accounts.

How to make the process easier

Preparation is key. As you get closer to buying a home, start organizing your finances. Make sure you have easy access to your account statements, especially if you’ve been moving money around. If you receive any large deposits, get the documentation ready to explain them. And if you’re pooling resources with another borrower, coordinate with them to ensure everything is in order.

By keeping your finances straightforward and well-documented, you’ll help ensure a smoother mortgage approval process. In the end, a little preparation can save you a lot of time and stress, getting you one step closer to your dream home.

If you have any questions about your mortgage, get in touch with Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.