You found a home and now it’s time to get your loan cleared for closing

They will determine the value of your account to ensure that it meets the amount you need to put down on the home.

However, you will also need to show the lender the proof of the sale of the asset once you sell it. You’ll provide the lender with the paperwork you receive for the sale. You’ll also need to prove that you transferred the funds into your account. Keep the deposit ticket from the transaction and provide it to the lender alongside your proof of the asset’s sale.

In extreme cases, you may borrow from your 401K. This isn’t a recommended method because it depletes your retirement funds. Even though you’ll pay the money back, you lose the time value of the compounded interest you would have received.

If you go this route, you’ll need your latest 401K statement. You’ll also need proof that you are eligible for a 401K loan. You’ll need your employer’s approval along with proof of the required payments. Some lenders may count the payment against your debt ratio. It varies by lender. Even though you are paying yourself back and you don’t owe interest, it’s still a debt. Lenders give you a specific timeframe to pay the debt back. This is the same as if you took out a loan from a bank, so the lender will likely count it.

Gift Funds

Many loan programs, including FHA and conventional loans allow gift funds for the down payment. You must follow a specific procedure in order to have the funds count.

The donor must provide you with a gift letter. The letter should be signed and dated by the borrower. It should state the amount of money they are gifting. It should also state the reason (home purchase) along with the address of the home. Finally, it should state that this is a gift and not a loan. This is the most important statement to the lender. Again, if it’s a loan, it could count against your debt ratio.

You’ll also need to provide the lender with proof of receipt of the funds. Some lenders also require proof of where the donor received the funds. They may ask for the last 3 months’ worth of banks statements from the donor. The lender will look for any large deposits that throw up a red flag. They’ll also need proof of the funds transfer. You can do this with a canceled check from the borrower and the deposit ticket into your account.

Verifying the down payment isn’t difficult, but it does require a paper trail. Lenders are on the lookout for any red flags that make them think the money is a loan. Even if it is a loan, it doesn’t always mean you’ll lose your mortgage approval. If it fits within your debt ratio, you may still have an approval.

Be honest with your lender about the source of your down payment funds. Ask what proof they will need to source the funds and what timeframe they must cover. Some lenders require more than 3 months’ of bank statements just to make sure the money wasn’t stuffed in your account just to make it look like you had more money.