Kentucky Mortgage Underwriting Guidelines updated for 2013
The asset documentation must present sufficient funds of an acceptable source for down payment, closing costs and reserves. If you have had a lot of recent inquiries on your credit report, the underwriter will want an explanation on why the inquiries were made and see if any new debts has opened since the credit report has been issued.
A large deposit could be a single deposit or multiple deposits over a period of time that in aggregate, result in a large deposit. A review of the borrower’s financial profile must be conducted in order to draw a conclusion that a deposit must be sourced. Items to take into consideration when identifying deposits to be sourced are as follows: • Are the deposits within the normal deposit pattern from an identifiable income source? • Are total monthly deposits consistent with income? • Is the ratio of deposits to income reasonable? • Is the borrower’s income direct deposited? • Are there multiple deposits over a period of time that in aggregate, result in a large deposit? • Was the account recently opened?
All large deposits must be addressed. Regardless of how long ago the earnest money was deposited, it must be verified. A signed letter of explanation from the borrower is required in all circumstances. If the borrower is able to provide a reasonable explanation and sufficient documentation to support the deposit is of an acceptable source, the large deposit may be included in the funds to close.
There may be an occasion, when the borrower is able to provide a reasonable explanation, but unable or unwilling to sufficiently document the source of a large deposit and has assets exclusive of the large deposit that are sufficient for closing and reserves. An underwriter, after exercising due diligence to ensure funds are not from an unacceptable source, may deduct the large deposit from the balance of the account, and allow the remaining balance in the account to be used as funds to qualify. In the course of due diligence, the underwriter must be confident the deposit was not as a result of an undisclosed debt or as a result of incentives from a seller, real estate agent or developer. In the event that an asset balance is reduced by the amount of a deposit, the system must be corrected, the reason for the change in the asset amount documented and the AUSdecision must be updated.
Any deposit that cannot be adequately explained could potentially raise a red flag and result in a declination. Items for consideration when excluding a deposit from the asset balance: • Do the overall assets seem reasonable given the borrower’s financial profile? • Is there other documentation in the file (such as tax returns) that may support additional income or asset sources? • Is the deposit possibly a loan?
Note: All other factors being equal, those individuals with checking and/or savings accounts are less likely to save money at home than an individual with no history of such accounts.