Cash To Close | How Much Do I Need To Bring To Closing

In this blog, we will cover and discuss the cash to close borrowers need to bring to closing. Homebuyers in a mortgage process will need to have their cash to close verified by mortgage underwriters. The lender will need to verify borrowers have enough verified funds for the down payment and closing costs for the mortgage closing. This is called cash to close. All down payment and closing costs need to be verified funds. Lenders will require 60 days of bank statements.

Cash To Close Needs To Be Verified By Mortgage Underwriters

Mortgage Underwriters need to verify borrowers did not have any bank overdrafts in the past 60 days. They need to verify borrowers have enough cash to close that is sourced. By sourced, all irregular deposits and large deposits made in bank account needs to be sourced and explained. For example, here is a case scenario:

• if the borrower had a large irregular deposit from an IRS refund check
• the mortgage underwriter will need to see the copy of the check from the IRS
• copy of the deposit slip is required
• in order for that large irregular deposit to be classified as sourced and for borrowers to be able to use it as cash to close on mortgage loan closing, the paper trail needs to be sourced
• if the borrower made an irregular large deposit of $5,000
• that cash deposit cannot be considered sourced funds
• that $5,000 cannot be used as part of the down payment on a home purchase

Unsourced Cash Cannot Be Used As Verified Funds for Cash To Close

All cash deposit is considered non-sourced funds and does not count as sourced funds. Closing costs can be received via sellers concessions towards a home buyer’s closing costs. If there are enough sellers concession, the home buyer does not have to worry about have those closings costs in their bank statements. In the event, if the home seller will not give a seller concession, the lender can cover part or all of the home buyer’s closing costs by offering lender credit towards the home buyer’s closing costs. This is possible in lieu of a higher interest rate.

What Does Cash To Close Mean?

The home buyer’s bank statements will always be scrutinized throughout the mortgage process until the mortgage underwriter will issue a clear to close. A clear to close is when a mortgage underwriter signs off on the mortgage and gives the mortgage company the clear to fund. However, prior to issuing a clear to close, the mortgage underwriter will need to verify the borrower’s bank account one final time. This is to make sure borrowers have sufficient sourced funds. Just because the borrower had enough cash to close on the initial part of the mortgage process does not mean that the mortgage underwriter will use that bank statement. Updated bank statements can be requested several times during the mortgage process. If borrower withdrew part of their savings during the mortgage process and does not have enough sourced funds that can be used for the down payment or closing costs, getting a clear to close will be an issue. This is a common problem. But there are always solutions when borrower comes up short with cash to close.

Options When There Are Not Sufficient Sourced Funds

Many borrowers may have enough funds to close on their mortgage loan but the key question is are those funds sourced. Again, cash deposits are worthless and cannot be used as sourced funds. If borrowers for one reason or another tap into their savings account during the mortgage process and do not have enough funds to close, there are options. The first option is that the home buyer can get gift funds from a family member or relative.

Use of Gift Funds For Cash To Close

Gift funds are allowed if the home buyer gets a gift letter signed from the donor of the gift funds stating that the funds the recipient is receiving are not a loan and that the gift funds will not be paid back after the closing of the home. The donor also needs to provide 30 days of bank statements showing that the gift funds have been sourced in the donor’s bank account. Account needs to show the gift funds leaving the donor’s account into the recipient’s bank account. This can be provided by showing the wire transfer leaving the donor’s account and entering the gift recipient’s account. Or the donor can show the copy of the check along with the deposit slip of the gift funds.

Adding Yourself To A Family Member’s Bank Account As A Joint Account Holder

If borrowers are short on verified funds, they can get a gift from a family member. Gift funds are allowed unless the Automated Underwriting System states gift funds are not allowed. If the borrower is getting a gift to come up with a shortage of cash to close, the donor needs to sign gift letter provided by a lender stating that the gift is a gift and not a loan. 30 days of bank statement of donor needs to be provided showing seasoned gift funds.

Using Joint Account As Verified Funds

Another way of showing funds is by adding the name of the borrower to a family member’s bank account making that account a joint account. The way borrowers can use this strategy is if they have a family member who trusts them and is willing to add borrowers name to one of their bank accounts with seasoned funds. They can add borrowers name on their bank account as an authorized/joint account holder. After this has been done, get 60 days of bank statement printouts from the bank teller. Have the bank teller date, sign, and stamp every page of the bank statements