Most people know that “seasoned funds” are funds that have been in a borrower’s account for more than 90 days. Lenders verify “seasoning” by reviewing a borrower’s last two account statements and looking for all “unexplained” deposits. Lenders scrutinize deposits/seasoning much more now than in the past, and this frequently delays transactions.
Lenders look for seasoned funds because they want to make sure borrowers have some of their own funds (“skin”) in the transaction. They also want to make sure that borrowers have not borrowed funds in some undisclosed way (cash advance on credit card; unsecured loan from friend, etc.) that might affect debt ratios.
Seasoned funds can come from earned income (no matter how recent), the receipt of rental payments, or the sale of an asset like a car or a piano (as long we get a bill of sale, and a copy of the check used for payment).
Deposits as small as $500 that cannot be “explained” or “paper-trailed” are considered “unseasoned”, and they can sometimes render an entire account (no matter how large the balance) invalid for loan-qualification purposes.
When we have too many “unexplained” deposits, we often have to convert borrowers’ funds into “gift funds”, as addressed in yesterday’s blog. This can get very complicated and cumbersome, so our best advice is to always avoid “unexplained” deposits.
Founder/Broker | JVM Lending
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