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Understanding cash on hand

Recently, I was reading an article outlining the amount of cash needed to buy a house. To be honest, as a mortgage loan processor, the word “cash” makes me nervous! Using cash on hand for your down payment and closing costs, may cause a closing delay and/or additional documentation needed. That’s because for final loan approval, there are very few circumstances allowing for cash on hand to be used as a source of down payment and closing costs.

As detailed at Quality Mortgage’s website, mortgage lenders look for sourced and seasoned down payment funds. Seasoned funds mean money has been in your account for two or more months, typically through normal savings patterns. When we source funds, we’re requesting proof of where the money came from. Lenders typically require two months of bank statements and review for any significantly large deposits. This is so buyers can prove they have enough money for closing. For example, funds from a gift, 401K or vehicle sale are generally acceptable sources. However, we have to prove everything and there are very specific guidelines for each situation. We care where funds come from because we have to ensure the income supports the loan and all other obligations. If there’s a large chunk of unexplained money it could be from another loan.

If you want to avoid the work involved with sourcing funds consider opening a savings account specifically for your home purchase sooner rather than later.

Mortgage loans start as an application and end as a closing, but the process from beginning to end differs for each loan. If you’re planning to use cash on hand as your down payment source be sure to ask your lender about their requirements right away because they could vary.

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Shelly Heiderscheidt

Shelly Heiderscheidt

Loan Service Representative - Real Estate | NMLS #641330