What Counts as Depository Assets
Depository assets include any funds held in traditional bank accounts: checking accounts, savings accounts, money market accounts, and certificates of deposit. These represent the most common source of funds that homebuyers use for their down payment and closing costs.
Say you have $50,000 in a savings account and $15,000 in checking. Both amounts count toward your available assets for the mortgage, provided they can be properly verified. The key requirement is that these funds must be in accounts at banks, credit unions, or other depository institutions.
Business accounts also qualify if you're listed as an owner on the account. This matters for self-employed borrowers or those with ownership stakes in companies. Your lender will verify your ownership status and ensure the funds are accessible for your home purchase.
How Lenders Verify Your Depository Assets
Verification happens through bank statements, typically covering the most recent two months. Your lender will request these statements directly from you or, in some cases, obtain them electronically from your bank with your permission.
The statements must show account activity, not just balances. Lenders need to see the flow of money in and out of your accounts to identify any unusual deposits or patterns that might indicate borrowed funds.
Alternative verification methods include Verification of Deposit forms (Form 1006) sent directly to your bank. When this method is used, lenders must verify the source of funds for any accounts opened within 90 days of your application and any balances that seem unusually high compared to the average balance shown on the form.
The Large Deposit Rule
A large deposit is any single deposit that exceeds 50% of your total monthly qualifying income. If your qualifying income is $8,000 per month, any deposit over $4,000 triggers the large deposit rule.
For purchase transactions, you must provide documentation or explanation for these large deposits. This might include a letter explaining the source, copies of checks, or other supporting documents. The lender needs to verify that the money wasn't borrowed, which would create an undisclosed liability.
Refinance transactions get more lenient treatment. Documentation isn't required for large deposits, though lenders still must ensure any borrowed funds are properly disclosed and counted as liabilities.
Some deposits don't require additional documentation even if they're large. Direct deposits from employers, Social Security payments, tax refunds, and transfers between your own verified accounts are typically acceptable without further explanation if the source is clearly identified on the bank statement.
When Large Deposits Get Complicated
Problems arise when the source of a large deposit isn't clear from your bank statement. A deposit labeled simply "mobile deposit" or "ATM deposit" will require explanation and documentation.
Gift funds create another layer of complexity. If someone gave you money for your down payment, that large deposit needs a gift letter, documentation of the donor's ability to give the funds, and proof that the money was transferred from the donor's account to yours.
Sale of assets can also trigger scrutiny. If you sold a car, boat, or other personal property and deposited the proceeds, you'll need a bill of sale and other documentation showing the legitimate source of funds.
Why Fannie Mae Requires Asset Verification
The verification requirements exist to prevent mortgage fraud and ensure borrowers aren't taking on undisclosed debt. If you borrowed money for your down payment but didn't tell your lender, you're carrying more debt than appears on your application.
This matters for your debt-to-income ratio and overall ability to repay the loan. Hidden debt increases your default risk, which is why lenders must investigate any signs that funds might be borrowed rather than saved.
The large deposit rule specifically targets this concern. Unusual deposits often indicate borrowed money, asset sales that should be documented, or other sources that need verification.
Business Assets and Self-Employment
Business assets require extra attention when you're also using income from that same business to qualify for the mortgage. Your lender needs to ensure the business has sufficient cash flow to support both the asset withdrawal and your ongoing income.
Say you own a consulting business with $75,000 in its checking account, and you want to use $40,000 for your down payment. Your lender will analyze whether removing that money affects the business's ability to generate the income you're claiming on your mortgage application.
The verification process for business accounts mirrors personal accounts, but documentation requirements may be more extensive. You might need business bank statements, operating agreements, or other documents proving your ownership and authority to access the funds.
Desktop Underwriter and Asset Validation
When your loan goes through Fannie Mae's automated underwriting system (Desktop Underwriter), the DU validation service can streamline asset verification. This service connects directly to many banks and can verify account balances and activity electronically.
When assets are validated through this service, DU will specifically identify which large deposits require documentation. Following DU's guidance satisfies Fannie Mae's requirements for documenting large deposits.
This automated process can speed up your loan approval, but it's not available for all banks or account types. Your lender will let you know if electronic validation is an option for your accounts.
Common Documentation Mistakes
Incomplete bank statements cause frequent delays. Make sure you provide complete statements showing all pages, including any blank pages or pages showing no activity. Partial statements or screenshots typically aren't acceptable.
Missing explanations for large deposits create another common problem. Even if a deposit seems obvious to you, your lender may need written documentation. A bonus from work, for example, might require a letter from your employer even if it shows as a direct deposit.
Timing issues also create complications. Opening new accounts or moving large amounts of money right before applying for a mortgage can trigger additional documentation requirements. The 90-day rule for new accounts means any account opened within three months of your application needs extra verification.
References
For the official guidelines, see B3-4.2-02: Depository Accounts in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B3-4.2-02, Depository Accounts (12/14/2022)
Depository Accounts
Funds held in a checking, savings, money market, certificate of deposit, or other depository accounts may be used for the down payment, closing costs, and financial reserves. The funds must be verified as described in B3-4.2-01, Verification of Deposits and Assets. Unverified funds are not acceptable for the down payment, closing costs, or financial reserves.
The lender must investigate any indications of borrowed funds. These must be identified differently based upon how the asset account was verified.
Business Assets
Business assets may be an acceptable source of funds for the down payment, closing costs, and financial reserves. The borrower must be listed as an owner of the account and the account must be verified in accordance with B3-4.2-01, Verification of Deposits and Assets. If the borrower is also using self-employment income from this business to qualify, see Section B3–3.2, Self-Employment Income, for additional information on the analysis of a self-employed borrower.
Evaluating Large Deposits
A large deposit is defined as a single deposit that exceeds 50% of the total monthly qualifying income for the loan. When bank statements (typically covering the most recent two months) are used, the lender must evaluate large deposits. See B3-4.1-04, Virtual Currency for additional information when a large deposit may be from virtual currency that was exchanged into U.S. dollars. Requirements for evaluating large deposits vary based on the transaction type, as shown in the table below.
Refinance transactions
Documentation or explanation for large deposits is not required; however, the lender remains responsible for ensuring that any borrowed funds, including any related liability, are considered.
Examples
Note: If the source of a large deposit is readily identifiable on the account statement(s), such as a direct deposit from an employer (payroll), the Social Security Administration, or IRS or state income tax refund, or a transfer of funds between verified accounts, and the source of the deposit is printed on the statement, the lender does not need to obtain further explanation or documentation. However, if the source of the deposit is printed on the statement, but the lender still has questions as to whether the funds may have been borrowed, the lender should obtain additional documentation.
The DU validation service automates the assessment of large deposits. When assets are validated, DU issues a message indicating which large deposits require documentation. Compliance with the DU messages satisfies the requirement for documenting large deposits. See B3-2-02, DU Validation Service
Request for Verification of Deposit
When a Verification of Deposit (Form 1006) (VOD) is used and depository activity is not included, the lender must verify the source of funds for
accounts opened within the last 90 days of the application date, and
account balances that are considerably greater than the average balance reflected on the VOD.
