Purchasing a Home? Here is What you Should know
Purchasing a Home is a very important and life-changing event. There are many costs involved when purchasing a home, one of which is your down payment. As part of the loan process, you will most likely need to provide verification of your down payment (if you don’t have 20% to put down then expect to pay private mortgage insurance).
Your lender will want information about where that money came from. If you made any additional deposits into bank accounts prior to closing on your new house, the lender wants to know it. Your lender will want verification for these funds so they can determine whether or not the funds were legitimate and were obtained in an acceptable manner (for example inheritance, gift,-related income).
There are options to provide the information needed, including copies of bank statements (the most popular choice). If you’ve already closed on your new home and now need this information, here is what you should know.
1. You can get that documentation – no matter how recently your accounts were opened or closed. Lenders want accurate information for their records; even if it happened just 20 minutes ago!
2. Banks are required to keep these kinds of documentation available for at least seven years after they have been received or created by the bank. While there is no set standard by law as to how long banks must retain deposit agreements/statements, they usually do so in order to comply with State Money Transmitter laws which require banks to keep these records for a seven-year period.
3. Your bank cannot refuse your request. For the most part, banks are not allowed to refuse a request from a home buyer or an accountant who is working on behalf of a homeowner – as long as the request meets certain criteria. In order for your bank to refuse your information request, they must have a reasonable belief that you may be committing fraud, which is something very difficult for them to prove in most cases. It would be much easier for them to simply provide you with the documentation that you have requested and then take further action if they feel that you are involved in fraudulent activity after reviewing those documents!
4. Banks want this information sent directly through a secure connection – so email it! But, before sending any sensitive information, make sure that the financial institution has an appropriate system in place for secure communication. A good way to check if your bank or credit union has this type of system is to send them a blank email and look at the properties of that email when you receive it back – if there are no special signs then they most likely do not have a secure communication system in place (which means they can legitimately refuse to communicate with you about these matters over email).
5. Sending the information via courier is another option – use FedEx or UPS (not USPS). Your bank might accept documents sent by standard mail but it is very unlikely they will accept legal documents via certified. However, companies like FedEx or UPS will accept these types of documents. Make sure that you send the documents via an overnight courier and that you get a tracking number for them just in case something goes wrong with the delivery.
6. If you provide information over the phone, be careful who is listening! While your bank can refuse to communicate with you by phone about sensitive information they cannot keep you from providing the information through other means (e.g., email or fax). So if you must provide this type of information on the phone make sure no one else is around so they don’t overhear what it being said – do not use speakerphone!
7. When purchasing a new home it’s common for there to be some “mad scrambling” at closing time; banks are used to this. Purchasing a home is usually the most expensive purchase that most consumers will make so there are often some issues or concerns that need addressing right before closing time. That said, you should ask your lawyer whether they have obtained all of the required documents from the financial institution in order to close on time.
The lender will want the information to help them determine if the funds were transferred from another financial institution (meaning you closed an account, took money out and moved it into your closing account). If the deposit was made within 60 days of your closing date, there could be additional scrutiny. The time frame is also important because the income must be verified over a period of time NOT just three months prior to purchasing.
Your down payment can come in many forms; savings, insurance settlement, inheritance or gift monies to name a few. You may have accumulated these funds but you may not have had documentation for that money during its accumulation process. You should contact your lender immediately to verify how they want you to take care of this issue so everything is resolved in a timely manner.
You may consider hiring an accountant who can keep track of all the monies you have received in the past year; where it came from, how much you got and when (date) it arrived. This will be time well spent if you are borrowing funds for your down payment since your lender is going to request this information. Keep in mind that you do not want to take money out of one account to make your down payment; rather, borrow the loan amount, then pay yourself back over several months with interest if needed.
This is just one aspect of home ownership that could affect whether or not you get approved for financing, so plan ahead and know what information they need by contacting them prior to making any deposits into any account.
Purchasing a Home is a very important and life-changing event. There are many costs involved when purchasing a home, one of which is your down payment. As part of the loan process, you will most likely need to provide verification of your down payment (if you don’t have 20% to put down then expect to…