When securing a mortgage, lenders don’t just want to know how much money you have for a down payment—they need to verify where that money originates. This process, called down payment sources verification, helps lenders assess the legitimacy of your funds and your overall financial stability.
Why Lenders Verify Down Payment Sources
Lenders investigate your down payment sources to ensure funds are:
- Truly yours or from an acceptable gift with proper documentation.
- Originating from lawful activities to comply with anti-money laundering regulations.
- Seasoned, meaning funds have been in your account typically for at least 60 days to show stability.
- Not borrowed in a way that could increase your debt burden without disclosure.
Their goal is to mitigate risk by confirming your ability to repay the mortgage and avoid loans based on unstable or unverified funds.
Common Acceptable Sources and Required Documentation
Lenders generally accept various down payment sources as long as you provide proper documentation proving the origin:
- Savings and Checking Accounts: Bank statements for 2-3 months showing consistent deposits and no large unexplained amounts.
- Gift Funds: Require a signed gift letter from the donor, proof of transfer, and often the donor’s bank statements. For detailed gift fund rules, see our Mortgage Gift Funds article.
- Sale of Assets: Documentation such as closing disclosures for property sales or brokerage statements for stocks. Proof of deposited proceeds is necessary.
- Retirement Accounts: Statements showing withdrawals or loans from 401(k)s or IRAs, including any tax implications.
- Down Payment Assistance Programs: Approval letters and terms from qualifying programs; see Down Payment Assistance Program for more.
- Inheritance: Legal documents like wills or trust papers along with proof of deposited funds.
| Source | Typical Documentation |
|---|---|
| Personal Bank Accounts | 2-3 months bank statements (all pages) |
| Gift Funds | Gift letter, donor’s bank statements, transfer proof |
| Sale of Property/Assets | Closing Disclosure, brokerage or bill of sale documents |
| Retirement Funds | Withdrawal statements, plan administrator letters |
| Assistance Programs | Official approval and assistance terms |
| Inheritance | Will/trust documents, executor letters, bank statements |
Red Flags Lenders Watch For
- Sudden large cash deposits without traceable documentation.
- Undocumented transfers or unexplained deposits.
- Borrowed funds used for the down payment not disclosed or disallowed by the loan program.
- Frequent last-minute transfers between accounts without clear explanations.
Tips for a Smooth Verification Process
- Start early gathering all financial documents before applying.
- Avoid large cash deposits shortly before application; if necessary, document thoroughly.
- Keep meticulous records of all transactions.
- Fully disclose gifts and fund sources to your loan officer.
- Limit unnecessary money movements between accounts.
- Confirm specific lender requirements as they can vary.
By properly verifying your down payment sources, you demonstrate financial responsibility and improve your chances of mortgage approval. For more details on related topics, see our articles on Down Payment and Gift Funds.
References:
- U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1. https://www.hud.gov/program_offices/housing/sfh/handbook_4000-1
- Fannie Mae Selling Guide: Eligible Sources of Funds. https://selling-guide.fanniemae.com/B3-4-03-Acceptable-Sources-of-Funds-B3-4-03-Acceptable-Sources-of-Funds.htm
- Consumer Financial Protection Bureau. What is a mortgage down payment? https://www.consumerfinance.gov/ask-cfpb/what-is-a-mortgage-down-payment-en-1951/
