Seasoning Your Money
Many consumers are confused as to what the terms “sourced” and “seasoned” mean in relation to mortgages and their importance in the mortgage loan process. Here we delve into both and the best ways to achieve them.
Sourcing funds simply means determining where the funds came from originally. Being able to provide documentation on where your funds are coming from when paying a down payment on a mortgage loans is incredibly important. A lender wants proof you didn’t borrow the money recently and will have that to pay off on top of your mortgage loan. You want to establish yourself as a responsible borrower and will be able to pay off your mortgage loan as you have promised. Taking out a loan to get another loan is going to raise a red flag that you are not financially responsible. You are much better off putting down what you are able to and working with your lender to get the mortgage terms that will best suit you financially.
Seasoning money refers to the concept of keeping money in your established bank account for a specific period of time. While it depends on your lender, you should expect to have the money in your bank account for a minimum of 60 to 90 days for it to qualify as sufficient funds to put towards your mortgage loan. This, much like sourcing, is to establish credibility as a borrower and again provide proof that you have the money necessary to obtain a home loan. The key here is to show you have had the money in your name for an acceptable period of time. While hiding money in your pillowcase under the mattress might be how you have kept your money in the past, when trying to obtain a mortgage loan, this will not be seen as a valid way to document your funds or assets.
There are exceptions when it comes to sourcing and seasoning. For example, if you receive a bonus at work or a tax refund, these assets can still be used for your down payment and will not be subjected to the 60 or 90-day rule, depending on the lender. But if you have other cash lying around and plan on applying for a mortgage loan in the near future, deposit that money into the bank as soon as possible.
Why did this become part of the mortgage loan process? During the housing boom, lenders did not check where funds were coming from. If a borrower was able to pay a significant down payment, rarely were questions asked. But once the market crashed, the focus was turned to making sure borrowers would be able to pay back their mortgage loan, which means checking to ensure their income versus debt checks out.
Follow these tips to be sure your money is properly sourced and seasoned when you go to apply for a mortgage loan:
1. Put your money in the bank. Get in the habit of seasoning your money. You never know when you’ll need to take out a loan. Whether it be for education, a car, or a home, being able to prove you have been maintaining a steady bank account is essential.
2. Do not borrow money. When trying to obtain a loan, getting another loan will only hurt you. Lenders see this as a sign that you do not have sufficient funds to pay back their loan and will be less likely to accept your application. This also encompasses borrowing money from family or friends. Lenders expect you to be able to provide documentation on where all of your assets have come from.
3. Prep bank statements. If you are about to begin the mortgage loan process, get your bank statements ready. Most lenders require a minimum of two month’s worth of statements to accurately show the flow of your funds both in and out of your accounts.