One of my most recent clients who bought a home in Richmond VA was self-employed. Because of the nature of her business, she made several large deposits into her bank accounts throughout the month. The deposits were payments from clients. Since they were large and not payroll, the underwriter requested that she “source” the deposits.
What Does “Sourcing” Mean?
In the mortgage industry, “sourcing” simply means to explain where funds came from (usually with a letter of explanation) and provide documentation to support the explanation. Here are a few examples of deposits you may need to source:
- Money from the sale of an asset (purse on eBay, car, etc.)
- Bonus check
- Birthday check from Grandma
How To “Source”
Sourcing a deposit requires the following two steps to be completed:
1) Write a simple letter of explanation.
2) Provide documentation substantiating the deposit. Here are some examples: cancelled check, pay stub, bank statement, receipt of sale of goods.
An Ounce of Prevention
Sourcing deposits for underwriting can be a headache if you have a lot of them. In order to keep your work to a minimum during the underwriting process, avoid making large deposits into your bank account. If you are two bank statements away from closing on your house, you could also move all of your funds for closing into one bank account. Keep this bank account void of any deposits other than payroll, and you will save yourself a lot of trouble, letters of explanation, and rounding up cancelled checks for your loan officer or processor.
Communication Is Key
The best advice I have for my clients is to always communicate your loan officer. If you don’t know what to do with a deposit or are questioning whether or not to move funds from one account to another, then you should reach out and ask your loan officer for advice. I think sometimes clients worry about bothering us, but we would much rather you call or email us with a question so that we can avoid an underwriting nightmare or a delayed closing. It’s our job to advise you on the best way to manage your assets for your home purchase during the mortgage process.