October 5, 2016
One commonly asked question about FHA home loans involves how the lender verifies the borrower’s sources of cash to close the loan. FHA loan rules in HUD 4000.1 require the lender to verify all sources of cash to close (including your down payment) and when dealing with this requirement the first time, some loan applicants are surprised when the lender asks for specific details such as account numbers, bank statements, etc.
In an age where cyber fraud, phone scams, and “phishing” for account numbers make headlines on a near-daily basis, it’s not surprising that bank customers would question a lender’s request for account numbers and other financial data.
A version of a common question in this area goes like this: “My lender says she needs verify my cash reserves and says my account numbers including my checking account and savings account are required. Is this true?”
Let’s examine what HUD 4000.1 has to say about verifying cash to close, starting with the basic definition of the rules:
“The Mortgagee must document all funds that are used for the purpose of qualifying for or closing a Mortgage, including those to satisfy debt or pay costs outside of closing. The Mortgagee must verify and document that the Borrower has sufficient funds from an acceptable source to facilitate the closing.”
When dealing specifically with funds to close that come from a borrower’s checking and/or savings accounts, HUD 4000.1 instructs the lender:
“The Mortgagee must verify and document the existence of and amounts in the Borrowers checking and savings accounts. For recently opened accounts and recent individual deposits of more than 1 percent of the Adjusted Value, the Mortgagee must obtain documentation of the deposits. The Mortgagee must also verify that no debts were incurred to obtain part, or all, of the MRI.”
“MRI” is short for Minimum Required Investment, or down payment. HUD 4000.1 adds, “If the Borrower does not hold the deposit account solely, all non-Borrower parties on the account must provide a written statement that the Borrower has full access and use of the funds.”
FHA loan rules state that the lender needs a Verification of Deposit (VOD) from the borrower and a statement for the account(s) used as a source of cash for closing costs:
“The Mortgagee must obtain a written VOD and the Borrowers most recent statement for each account. If a VOD is not obtained, a statement showing the previous months ending balance for the most recent month is required. If the previous months balance is not shown, the Mortgagee must obtain statement(s) for the most recent two months.”
Lender standards may also apply here, so the borrower may have additional requirements to furnish documentation. FHA loan rules in this area are designed to prevent the borrower from acquiring cash to close from sources such as payday loans, pink slip loans, or other “non-collateralized loans”. All downpayment/closing funds must be verified and approved by the lender.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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