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Sourcing Your Loan

Posted on March 4th, 2012 with 0 Comments

By Michael Dolan

The standard guideline for loans is that you need enough cash to close the transaction sitting in your Savings or Checking account for two months.  For a refinance, that may mean a few thousand dollars.  For a purchase, it usually means 20% down and enough funds to cover closing costs.  In addition, it’s safer to have two months of mortgage payments on hand, though not always required.

Sometimes people don’t meet the standard guideline and will be adding money to their account.  That’s OK.  The purpose of this message is to explain how to move money into your account without being surprised or frustrated.

Moving money into an account is called “Sourcing.”  The requirements we are about to discuss follow both federal rules regarding money laundering and wholesale lender guidelines.  When you see news accounts reporting “credit is tighter,” these requirements are what they are talking about.

Your first step is identifying your “Closing Account.”  This is the Savings or Checking account you will use when you close the loan.  It is where the money moves to.  List it on your application.

Sourcing requires three documents:

  1. The Closing Account monthly bank statement
  2. A document showing the source of the funds moving in
  3. A document that records the movement such as a deposit slip.

There are many varieties of Sourcing documents depending on your specific situation.  The recording document is usually the most difficult.  Sometimes the record of movement can be on one of the bank statements.  An example is a paycheck automatically deposited into your Closing Account.

A “Transaction Log” is necessary when a loan needs to close before your monthly Closing Account statement is ready.  This document is a list of recent deposits and withdrawals for your Closing Account.  You get a copy by going online and selecting a begin date and end date for account activities.  Your banker can help you.  The Transaction Log needs to overlap the latest Closing Account statement.

Sourcing documents must be thorough and complete.  Numbers must match up.  Content matters.  If you source your Closing Account with another bank statement, and there is a large unexplained deposit into the source account, you will need to source that too.

All financial documents require three identifications: Name of account holder; Name of financial institution; and Account number.

The lender may ask for a Letter of Explanation for certain large deposits.  This letter must be specific to the deposit, listing bank name; date of deposit; and account number.  You can use a partial account number for security.  Your mortgage broker can help you with the letter.

As you can see, it is best to begin work on Sourcing as soon as possible.

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