One of the biggest sources of anxiety for the first time home buyer is the asset documentation needed for submission and for the final approval. First time home buyers can easily feel overwhelmed with the amount of documentation that is needed, especially when it comes to sending in their bank statements, large deposit sources, and other asset documentation. This blog post will aim to help the fist time home buyer prepare for this part of the loan process, and offer some tips and insight to make it as painless as possible.
Handling Large Deposits
For asset documentation, the typical requirements are the most recent two months of Bank Statements for the main borrower on the loan. If the first time home buyer consists of a borrower and a co-borrower, and they have two separate accounts along with a joint account, all accounts must be sent in. For USDA requirements, all household member assets are required, as long as they are over eighteen.
Any accounts where the first time borrower is listed as a joint-account holder, a full access letter will be required. This letter indicates that the account holder not on the mortgage is giving the first time borrower full access to the funds in the account. This letter is required if the first time borrower wishes to able to use the funds in this particular account for closing.
Another tip that can help first-time home-buyers with the sending in of Bank Statements, is to go over their transactions prior to sending the Bank Statements in to your Loan Officer or Loan Processor. Underwriters will be looking for “large deposits” on your Bank Statement, and will need an officially signed (in pen) and dated letter of explanation detailing where this money came from. The first time home-buyer will also need to provide a copy of the source of this deposit. This can range from a Pay stub to another Bank Statement as a source if it’s a transfer, for example.
Utilizing Retirement Accounts
Underwriters need to identify what the first time borrower’s large deposits are for different reasons, based on the loan program. For USDA Loans, the underwriter needs to know the source of large deposits to insure that it is not another source of income. For other loans, such as Conventional, FHA, and VA for example, the deposits just need to be able to be sourced to protect against potential money laundering. USDA guidelines for large deposits vary, as there is no set rule. If the first time borrower has a lot of $20 dollar deposits not shown as from an employer on the Bank Statement , the underwriter may ask these deposits just to be sure. For the other loan types, the general rule is any large deposits that are 1% of the purchase price or higher will need to be explained or sourced.
For other asset documentation, such as 401K Accounts, and/or IRAs, these may be used for closing and/or to show fund reserves if the appropriate documentation is given. First time borrowers may use any retirement, 401k, and/or IRA accounts provided that account allows for hardship or early withdrawals. In order to prove this, First time borrowers will need to provide their most recent statement and a copy of their Plan Summary, which details the Terms and Conditions of Withdrawal.
Hopefully this blog post has helped with easing the concerns most first-time home buyers encounter with submitting asset documentation. The loan process will be much faster if the first time borrower provides all the required additional documentation before it’s asked for, especially for the asset conditions!
