Sourced and Seasoned Down Payments

At Mortgage Options, Inc., we not only want to find the mortgage that works best for you, we also like to take the opportunity to educate our home buyers when possible. We’ve received many questions recently regarding the requirement for “sourced and seasoned” funds for a down payment. Let’s take a look at what that means and why it’s required.

Simply put, most mortgage lenders require that the funds used for your down payment are sourced and seasoned. Sourced means that the funds used can be traced back to their source – whether they are funds from your normal income source, like a job, a gift from a family member, or a withdrawal from an investment account like a 401k or IRA.

Seasoned funds means the money has been in your bank account for anywhere between 30 to 90 days. Each lender has a different requirement, but the usual requirement is 60 days. Your loan officer will tell you the requirement for the type of mortgage you are applying for, but it’s best to assume that you should have the money in your possession, in a bank account, for at least 60 days.

During the real estate boom of the early 2000s, mortgages were easy to come by, and the sourced and seasoned rule was not requirement. Of course, we all know what happened in 2009 when the housing bubble burst. Much of this was due to loose lending restrictions and lack of oversight.

To prevent a similar housing bubble from developing, lenders have become stricter with their loan qualifications process and have started requiring things like “sourced and seasoned” funds. The hope is that sourced and seasoned funds will show that the borrower has the money to take on a mortgage, and a steady stream of income to make the payments for the foreseeable future.

If you are planning to buy a home in the next few months, it’s best to start planning and saving for your down payment now. A good practice is to set up a separate bank account for your down payment funds and start making deposits there. This way it will be easier to start the paper trail required for “sourcing” the funds, and you won’t be making any large deductions from the account that may raise red flags on the “seasoning” aspect of the funds.

If you are planning to buy a house in the next month, start gathering the paperwork required to show your lender that your funds are sourced and seasoned. Bank statements are a must, and any other asset-related paperwork.

In the end, the sourced and seasoned requirement is a way for lenders to determine if you are a responsible consumer and likely to be able to repay the mortgage. If your funds come from your regular income or savings, you have nothing to worry about. If it came from a short-term funding source, such as a cash advance, you might have some explaining to do.

In either case, the loan officers at Mortgage Options, Inc. are here to help you get the mortgage that works for you, and educate you on the requirements for each type of loan. Contact us today for a free consultation and to get you on the path of homeownership. 803-732-5787.