Loan underwriting guidelines today require full documentation. This means that buyers have to document the source of all funds that are used in buying a home.
Funds are needed for the down payment, closing costs, and prepaid items. Conventional loans require buyers to also have 2 months of house payments (called reserves) in the bank after the close of escrow. FHA does not require the 2 months reserves, but if the buyers have reserves it will add strength to the loan file for approval.
Buyers need to provide bank statements for the most recent 2 months. Even if buyers are not going to use one of their accounts for funds to close, it is a good idea to provide statements for the acount because it will add strength to the loan file for approval.
Buyers liquid assets are checking, savings, stocks and money market acounts. They are liquid because they can be accessed quickly to use for funds to close. Non liquid asets like retirement or pension accounts may be used, but acess to the funds can take time and there may be penalties involved for withdrawing funds.
Any large depositis will require a written explanation from the buyers. The loan underwriter wants to verify that the deposits are not the result of the buyers getting a loan that will require the buyers to have a monthly payment. Any large withdrawls will require a written explanation for the underwriter to verify the buyers do not have an ongoing financial obligation.
If the bank statements have another name with the buyers names, it will require a written statement from the other person that gives the permission to the buyers to use funds in the account.
If "gift funds" are used, FHA allows gift funds for all of the down payment, closing costs and prepaids. In a conventional loan, the buyers have to have 5% of their own funds and the rest can be gift funds. A gift letter has to be signed by the donor and the buyers, and the donor has to provide proof of funds available to give to the buyers.
