What Funds You Need to Verify
When you apply for a mortgage, Fannie Mae requires lenders to verify that you have enough money to complete the transaction. This isn't just about your down payment. The lender needs to see proof of funds for your down payment, closing costs, any debt you're paying off to qualify, and reserves if required.
For purchase transactions, this verification happens every time. Say you're buying a $400,000 home with 10% down. You need $40,000 for the down payment, plus roughly $8,000 in closing costs, plus $2,000 to pay off a credit card to improve your debt-to-income ratio. The lender will verify you have access to all $50,000.
Refinance transactions work differently. If your closing costs are under $500 and you don't need reserves, the lender may skip the asset verification entirely. But if you're doing a cash-out refinance or your costs exceed $500, you're back to full verification.
How Lenders Verify Your Assets
Lenders accept three types of documentation to verify your funds: bank statements, verification of deposit forms, and third-party asset verification services.
Bank statements remain the most common method. The statements must show the financial institution name, your name as the account owner, the account number (at least the last four digits), all transactions for the period, and the ending balance. Computer-generated statements you download from your bank's website work fine, as long as they include all required information.
Verification of deposit forms go directly from your bank to your lender. These forms show your current balance, average balance over the previous two months, when you opened the account, and any loans secured by the account. Your bank representative signs the form and provides their contact information.
Third-party verification services pull your account data electronically. These services must send the information directly to your lender, not through you. The data must match what's required for bank statements or verification forms.
The Large Deposit Rule for Purchase Transactions
For purchase transactions, Fannie Mae requires documentation of any "large deposit" that you need to qualify for the loan. A large deposit equals more than 50% of your total monthly qualifying income plus any asset income used in your debt-to-income calculation.
Here's how this works in practice. Say your monthly qualifying income is $8,000 and you're not using asset income for qualification. Any single deposit over $4,000 counts as large and needs documentation if you're using those funds to qualify.
You deposited $5,000 from selling your car last month. If you need that money for your down payment, you must provide the bill of sale and proof the car belonged to you. If you have plenty of other funds and don't need the car sale proceeds to qualify, the lender can simply subtract that $5,000 from your available funds and move forward.
When Account Activity Triggers Extra Scrutiny
Lenders pay special attention to accounts opened within 90 days of verification or accounts where the current balance exceeds the average balance by more than 50% of your monthly income. These situations require documentation of the source of funds for purchase transactions.
You opened a new savings account six weeks ago and deposited $15,000. Even if no single deposit was large, the lender needs to know where that money came from. Maybe you liquidated a retirement account, received an inheritance, or sold investments. Each source has different documentation requirements and eligibility rules.
The same scrutiny applies when your account balance jumps significantly. If your checking account typically carries a $3,000 balance but suddenly shows $18,000, that increase triggers the documentation requirement.
Acceptable Sources of Funds
Not all money qualifies for mortgage transactions. Fannie Mae limits acceptable sources to your documented income, funds awarded to you from non-interested parties, and eligible asset types detailed in other guideline sections [[5501.3]] and [[5501.4]].
Your paycheck, tax refund, or bonus from your employer all qualify as acceptable sources. Lottery winnings, court settlements, or disaster relief funds work too, as long as the source isn't connected to your real estate transaction.
Money from your parents, siblings, or other family members may qualify as a gift, but gift funds have their own rules covered in [[5501.6]]. Money borrowed from friends, undocumented cash, or funds from someone involved in your real estate transaction typically don't qualify.
Why These Rules Exist
Fannie Mae's fund verification requirements protect against mortgage fraud and ensure borrowers can actually afford their loans. The large deposit rule prevents borrowers from obtaining undisclosed loans or using ineligible funds at the last minute.
The 90-day account opening rule catches potential fraud schemes where borrowers might temporarily "borrow" funds to show adequate assets, then return the money after closing. By requiring source documentation for new accounts, lenders can verify the funds legitimately belong to the borrower.
The different standards for purchase versus refinance transactions reflect risk levels. Purchase transactions involve more moving parts and higher fraud risk, while refinances typically involve existing homeowners with established payment histories.
Common Documentation Challenges
Borrowers often struggle with the large deposit rule because they don't realize routine transactions might trigger documentation requirements. That $6,000 deposit from your side business needs documentation even though it's regular income if it exceeds the threshold.
Mixed deposits create another common issue. You deposit a $3,000 paycheck and $2,000 cash from selling furniture in the same transaction. The lender can count the verified paycheck portion without additional documentation, but the cash portion might push the total deposit over the large deposit threshold.
Timing creates problems too. You sell stock to fund your down payment, but the settlement takes three business days. Your account statement shows the deposit after you've already provided statements to your lender. You'll need updated statements and documentation of the stock sale.
Electronic transfers between your own accounts can look suspicious on statements. A $10,000 transfer from your business account to personal account might appear as an unexplained large deposit unless you provide documentation showing you own both accounts.
References
For the official guidelines, see 5501.1: Funds required for the Mortgage transaction in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
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Original Freddie Mac Guideline Text
This section contains requirements related to:
Verification of Borrower funds for a purchase transaction
Verification of Borrower funds for a refinance transaction
General documentation requirements
Evaluation of deposits in the Borrower’s accounts
(a)
Verification of Borrower funds for a purchase transaction
For purchase transaction Mortgages, the Seller must verify that the Borrower has sufficient funds to qualify for the Mortgage, which includes any funds required to be paid by the Borrower and Borrower reserves. Funds required to be paid by the Borrower include, but are not limited to, funds needed for Down Payment, for Closing Costs and to pay off or pay down debt.
(b)
Verification of Borrower funds for a refinance transaction
For refinance Mortgages, the Seller must verify that the Borrower has sufficient funds to qualify for the Mortgage, which includes any funds required to be paid by the Borrower (e.g., funds needed for Closing Costs and to pay off or pay down debt) and Borrower reserves when
any
of the following apply:
The funds required to be paid by the Borrower are more than $500
Reserves are required for the transaction (i.e., as specified in
Section 5501.2
or required by the Feedback Certificate)
The Mortgage is a Manually Underwritten Mortgage
(c)
Eligible sources of funds
All funds required to be verified must come from the eligible sources described in
Sections 5501.3
and
5501.4
.
Section 5501.6
for interested party contributions requirements and
Section 5501.7(a)
for lender credit requirements.
(d)
Prorated real estate tax credits
Prorated real estate tax credits contributed by the property seller in areas where real estate taxes are paid in arrears may be considered when determining the funds required to be verified for the Mortgage transaction
only
when the Settlement/Closing Disclosure Statement indicates that an Escrow account is established and includes the portion of real estate taxes owed by the property seller for the period they owned the property. In such cases, the prorated tax credit from the property seller offsets that portion of the charge for the establishment of the Escrow account.
(e)
(i)
®
Mortgages
, the Documentation Level shown on the Feedback Certificate indicates the minimum level of documentation acceptable for a Loan Product Advisor Mortgage. The Seller must provide the documentation required in this chapter for the Documentation Level returned.
Manually Underwritten Mortgages
must at a minimum be documented according to Standard Documentation requirements.
(ii)
Documentation requirements for Borrower’s accounts
Assets held in an account at a financial institution may be verified using account statements, direct account verifications or third-party asset verifications.
The following table contains the requirements for these types of verifications:
Documentation requirements for assets held in an account at a financial institution
Asset account statements must:
Identify the account owner(s)
Identify the account number, which at a minimum must include the last four digits)
Show the ending balance
Show any outstanding loans secured by the asset
A computer-generated transaction history that is downloaded by the Borrower from the internet or by a financial institution representative from the institution's system is acceptable. The transaction history must identify the name of the institution and the source and include the information required above for asset account statements, unless:
It is used in combination with other asset verifications containing the missing information, and
It can clearly establish that the transaction history pertains to the same account
Direct account verifications (i.e., verification of deposit form (VOD))
Direct account verifications must:
Identify the account owner(s)
Identify the account number, which at a minimum must include the last four digits
Identify the current account balance
Identify the average balance for the previous two months
Identify any outstanding loans secured by the asset
Include the title, signature and phone number of the depository representative who completed the verification, unless the direct account verification is generated electronically by the financial institution
For purchase transaction Mortgages: the Seller must include documentation of the source of funds when an account is opened within 90 days of verification and/or when the current balance in an account exceeds the average balance by more than 50% of the sum of:
The total monthly qualifying income for the Mortgage, and
The amount derived from the asset calculation for establishing the debt payment-to-income (DTI) ratio in accordance with the requirements of
Section 5307.1
when assets are used as a basis for repayment of obligations
Third-party asset verifications
Asset verifications obtained through third-party verification service providers must:
Be received by the originator directly from the third-party verification service provider; and
Contain the same information as required for direct account verifications or asset account statements above.
Exception:
Verifications that are generated electronically and are not completed or provided by a representative of the employer or the depository institution, as applicable:
Are not required to contain the representative’s information, and
May identify the account with a minimum of the last two digits of the account number
If any required information is missing, the Seller must obtain additional documentation to supplement the third-party verification. The Seller is responsible for ensuring the accuracy and integrity of the information provided by the third-party verification services.
In lieu of the requirements above for third-party asset verifications, refer to
Section 5501.8
for requirements for Mortgages using automated asset assessment with Loan Product Advisor using account data that receive a result of “Eligible for Asset Representation and Warranty Relief” or “Eligible for Partial Asset Representation and Warranty Relief” on the Last Feedback Certificate.
(f)
Evaluation of deposits in the Borrower’s accounts
Except as stated below, the Seller is not required to document the sources of unverified deposits for purchase or refinance transactions. However, the Seller must consider any liabilities resulting from all borrowed funds.
When the source of funds can be clearly identified from the deposit information on the account statement (e.g., direct payroll deposits) or other documented income or asset source in the Mortgage file (e.g., tax refund amounts appearing on the tax returns in the file), the Seller is not required to obtain additional documentation.
(i)
Deposits requiring verification for all transactions
When an unverified deposit is used to pay off or pay down an existing debt in order to qualify for the Mortgage, the source of funds must be documented.
(ii)
“Large deposits” requiring verification for purchase transactions
For purchase transaction Mortgages, the Seller must document the source of funds for any “large deposit” that is needed to qualify the Borrower.
“large deposit”
is any single deposit exceeding 50% of the sum of:
The total monthly qualifying income for the Mortgage, and
The amount derived from the asset calculation for establishing the DTI ratio in accordance with the requirements of
Section 5307.1
when assets are used as a basis for repayment of obligations
When a single deposit consists of both verified and unverified portions, the Seller may use just the unverified amount when determining whether the deposit is a “large deposit.” When a “large deposit” is not verified and is not needed to qualify the Borrower, the Seller must reduce the funds used for qualification by the amount of the unverified deposit. For Loan Product Advisor Mortgages, refer to
Section 5101.3
to determine when resubmission to Loan Product Advisor is required.
(iii)
Acceptable sources of deposit
When a deposit requires verification as stated above, the Seller must determine all of the following:
Whether the source of the deposit is acceptable, as described below
That the funds belong to the Borrower
That the funds are eligible for the transaction
The only acceptable sources of deposit are the following:
The Borrower’s income
Funds awarded to the Borrower (e.g., disaster relief funds, lottery winnings, court-awarded settlement) provided the source is not an interested party to the real estate or Mortgage transaction
Funds derived from eligible asset types stated in
Sections 5501.3
and
5501.4
