Once you know how much you can put down on your home mortgage, you need to figure out how to prove where the money for the down payment and closing costs came from. You might be thinking, "Why do they care where my money comes from?" Lenders need to check where your money comes from so they can figure out how risky you are as a borrower and stop loan fraud. Because of this, it is very important for you, the applicant, to keep full and detailed records of how the money you plan to use for a down payment gets to you. Money from your own savings, checking, and money market accounts looks best to the bank for a number of reasons and is one of the easiest sources of capital to prove.
Money in a bank account is also easy to prove. The lender can ask you for bank statements that show you have enough money for the down payment and closing costs, or they can do a formal Verification of Deposit with your bank. Most lenders want to see statements from the last 2 to 3 months if you're showing full proof of income or up to 24 months if you're showing other proof of income.
Your lender may talk to you about seasoning requirements when you talk about your down payment. If you have money in a bank account for three months and it shows up in each statement, that money is said to have "seasoned" for three months. Your lender may want you to use money that has been in your account for a while for your down payment, and any large deposits of cash into your bank account may have to be explained, documented, and possibly ruled out. So start saving money and making plans!
Some loan types, like No Asset Verification mortgages or "no assets" loan programmes, do not require any kind of proof in this way. This type of mortgage doesn't require any proof of assets, just like it sounds. However, lenders usually won't let the applicant borrow more than 60% to 70% of the property's value without some kind of proof of assets. Stated Income Stated Assets mortgages are another type of loan programme that has become more popular over the past few years. These mortgages allow for limited verification of assets, and some of them let the borrower get up to 75% or 80% of the property's value as a loan.
Buying a home with no down payment, which is often called a "no money down" mortgage, has become a popular way for first-time buyers to enjoy the benefits of homeownership without having to save a lot of money. However, it is important to keep in mind that borrowers who want a zero down loan will have to pay higher interest rates and monthly payments, and they have a higher chance of defaulting and losing their home, according to statistics.
No matter how much you decide to put down, you can set up "reserves" with your application if you have assets besides the down payment and closing costs for the home and mortgage and can prove you have them. If you have a lot of cash on hand, good credit, and your down payment has been sitting in your bank account for a few months, you may be able to get into some of the best programmes and save hundreds of thousands of dollars over the life of your mortgage.
