How to Use Joint Bank Accounts for Your Mortgage Loan
Joint bank accounts and joint property.
These are issues that come up a lot in real estate discussions. People with joint bank accounts, say with a business partner, want to know if the funds in the account can be considered the potential borrower’s property. Even if there are large deposits from the other owner, can the money in the be used for mortgage purposes?
The fact is that yes, the money in a joint bank account, regardless of where it comes from, can be used by the borrower. However, the lender will need to evaluate the deposits and investigate the account for many different reasons. When documented properly, however, the money in a joint account can be used by the borrower.
Using Joint Bank Accounts for Mortgage Qualification
Using Depository Accounts
If you are using a joint depository account for loan qualification, the lender will need to investigate the account by looking at specific information. Funds that are held in checking or savings may be used for your downpayment, closing costs, or to meet financial-reserve requirements. Money market and CD accounts are also potential sources of funds, even if they are held jointly.
However, the funds must be properly verified by the lender, who will need to complete specific forms with your help. You will also need to provide copies of bank statements of investment portfolio statements to cover the most recent full two-month period of activity on the account. The statements will need to show a wide variety of information, including identification of the borrower, time period covered by statement, and all deposits and withdrawals within that time period.
For joint depository accounts, the lender will also need to investigate any indication of borrowed funds. Essentially, he or she will need to make sure that funds in the account could not be seized by another lender.
Using Business Assets
If you have money in a joint account that is used for business purposes, this too could be used for loan qualification. Business assets are an acceptable form of funding for down payments, closing costs, and financial reserves. If you are self-employed, this may be a good option for qualification, but you’ll have to provide federal tax returns so they can be evaluated by the lender. If needed, the business federal income tax returns will also be required.
To qualify, the borrower will need to be listed as an owner of the account and the account will need to be verified in essentially the same way that depository accounts are verified.
The lender will also need to perform an analysis of the business cash flow to confirm that the business itself will not be significantly harmed by the withdrawal of funds for loan qualification. For example, if the lender determines that withdrawing $20,000 for loan qualification will harm the business, they may not write the loan. This can be a significant barrier to qualification, but it’s a necessary step to ensure the business, which represents the income source for the borrower, is not put at risk.
How the Lender will Evaluate Large Deposits
When analyzing bank statements from joint accounts, the lender will typically need two months of information. The lender will also need to evaluate large deposits, which, as far as Fannie Mae is concerned, are deposits that represent over 50% of the total monthly qualifying income for the loan. However, the specific requirements will vary depending on the transaction type…
If you are seeking a loan to refinance your current mortgage, documentation or even the explanation of large accounts is generally not required. However, the lender will need to ensure that any borrowed fund are considered in the loan-writing process. These borrowed funds can include related liability.
For purchase transaction, the process is a little more complex. If the funds that will be used are coming from a large deposit, the lender will have to document the source and ensure that the source is acceptable. Acceptable documentation include a written explanation or proof of ownership of a sold asset. The lender will also need to include a written documentation of the reason for using the funds to qualify the loan.
On occasion, the borrower will not have all the right documents to confirm the source; if this happens the lender is allowed to use reasonable judgement, based on the available information, to make a decision. In this case, the lender will likely also consider debt-to-income ratio, income, and credit scores to make a decision.
If the large deposits can’t be properly verified, the verified funds will need to be reduced by the amount of the unverified large deposit, and the mortgage lender will need to confirm that the remaining amount is sufficient to meet the needs of loan qualification. For example, if the borrower can’t verify a $75,000 deposit into an account totaling $100,000, only the remaining $25,000 can be used for qualification purposes.
To make the process easier, the Desktop Underwriter validation service automatically assesses the large deposits. Once assets are validated, the DU program issues a message indicating which deposits require documentation, allowing you and the lender to move forward much faster. Compliance with the DU message will also satisfy the requirements for documentation, once again satisfying the requirements for large deposits.
Request for Verification of Deposit Form
At any point in the process, you may need to use a Verification of Deposit form, which can be either Form 1006 or Form 1006(S). These forms are used, but when depository activity is not included, the lender will need to take steps to verify the sources. This can be done for accounts opened within the last 90 days, and account balances that are “considerably greater” than the average balance of the account, which is reflected in the Verification of Deposit form.
Guiding You Through Joint-Account Qualification
If you have funds in a joint account that you wish to use for loan qualification, let San Diego Purchase Loans be your guide.
With experience and knowledge in mortgage lending, we can put your assets to work so you can get an affordable loan on a high-quality property.