One of the most common conditions I see on approval letters is to source-proof large deposits. Many borrowers don't realize that by depositing large amounts of money into their bank accounts they may be creating more work for themselves when seeking mortgage lending.
On a Conventional loan, the typical large deposit is considered any deposit greater than 50% of the borrower's gross monthly income. For example, if a borrower makes $3000 per month prior to taxes and deductions, any deposit for more than $1500 must be sourced. With this being said, Underwriters look at the overall financial situation of the borrower to determine the need for proof of deposits. Keep in mind, if the funds aren’t needed as cash to close or reserves, they may be backed out with an LOX.
UWM will underwrite the file to the Fannie Mae and Freddie Mac guidelines but keep in mind that other lenders may have overlays in place regarding this. For example, if your borrower makes about $100,000 per year and has a significant amount of money saved, you most likely will not see any conditions for deposits less than the 50% standard. However, if your borrower has just enough money in their account to cover the down payment, the Underwriter may question a smaller deposit.
Government loans are in a completely different realm. Any deposit greater than 2% of the loan amount must be sourced. For example, if the loan amount is $100,000, you must source any deposit larger than $2000.
You may be wondering why lenders and investors care so much about large deposits. One of the most important reasons large deposits are checked is to confirm that the borrower has not taken any new loans against this money that would create a higher debt ratio. If the borrower takes out a loan and has a new payment added into their monthly obligations, it might push the loan out of an approval status.
Knowing these guidelines when you are reviewing your borrower's bank statements is very important. Not only will you prevent additional frustration during the middle of the transaction, you will present yourself as the expert and be able to set the correct expectations up-front. A best practice is to take a moment to glance through the statements when your borrowers first send them to you, and ask them right then for the source of anything above the large deposit amount. Being proactive up front will help you and your borrowers in the long run.