Verification of Funds

Verification of funds is not required unless the borrower’s contribution is the greater than 2% of the purchase price. In those cases, the following are acceptable sources for verification of funds.

•	Checking or Savings Verification of Deposit (FNMA Form 1006)

o	Current balance must cover cash-to-close requirements.

o	Average balance must be consistent with current balance. Any significant increase must be accompanied by written explanation and proof of source of deposits,

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Bank Statements - To substantiate that a borrower has sufficient funds available for closing, the underwriter may accept the borrower's original bank statement(s) for the most recent two (2) months to verify funds that the borrower has in a deposit institution. The borrower's bank statements must identify clearly the depository institution, the account holder(s), the account number, the time period covered by the statement, all deposit and withdrawal transactions, and the ending account balance.

If the date of the borrower's most recent bank statement is more than 45 days earlier than the date of the borrower's application, the borrower must supply a supplemental statement - the underwriter may accept any bank-generated forms (such as deposit or withdrawal slips) that show a machine-printed account number, balance, and date.

•	Cash-On-Hand - Cash-on-hand is typically not an acceptable source of funds for closing. However, it may be acceptable if the following can be documented:

o	Analysis of discretionary income through a household budget supports the ability to accumulate the funds.

o	Cash is a way of life for the borrower and can be documented with receipts where cash is used consistently to make household payments, such as rent/mortgage, utilities, etc.

o	Gifts (or grants) - A borrower can use funds obtained as a gift (or grant) to satisfy part of the cash requirement for closing only if the donor is a relative or friend, or charitable organization, municipality, or nonprofit organization.

A gift must be evidenced by a letter that is signed by the donor. The letter must:

•	Specify the dollar amount of the gift and the date the funds were transferred;

•	indicate the donor's name, address, telephone number, and relationship to the borrower; and

▪	include the donor's statement that no repayment is expected.

The underwriter must verify that funds have been transferred to the borrower's account and show documentation of the transfer of the gift funds from the donor's account; for example, by obtaining a copy of the donor's withdrawal slip or canceled check and the borrower's deposit slip, etc. When the funds are not transferred prior to settlement, the donor may give the closing agent a certified check for the amount of the gift. A copy of that check or a settlement statement showing receipt of that check will be sufficient documentation for the underwriter's records provided the donor is listed as the remitter.

A gift (or grant) from a charitable organization, municipality, or nonprofit organization must be evidenced by either a copy of the letter awarding the gift or grant to the borrower or a copy of the legal agreement that specifies the terms and conditions of the gift or grant. This supporting document must include language indicating that no repayment of the gift or grant is expected and an indication of how the funds will be transferred (to the borrower, GMG, or the closing agent). GMG must include in the individual mortgage file evidence of the transfer of the funds - such as a copy of the donor's canceled check or a settlement statement showing receipt of the check.

Note: All supporting gift documentation (other than the gift letter) is no longer required if the entire gift is going toward closing costs/prepaids (any amount), or being used to pay-off debt of $1,000 or less.

o	Disposition of Personal Assets - Proceeds from the sale of personal property may be used towards closing costs. Documentation for funds obtained should include a bill of sale, bank statement verifying deposit of funds, and when applicable, a transfer of title.

o	Borrowing of Funds on an Unsecured Basis - Borrowers that qualify may borrow funds on an unsecured basis to pay for their closing costs and prepaids. For example, a borrower could obtain an unsecured loan from a family member, bank or credit union, or even a credit card cash advance.

In order to qualify for this option, a borrower's median credit score must be 660 or above.

When utilizing this option, Underwriters must remember to include the unsecured debt in the total debt calculations, and should indicate on the "Source of Down payment, Settlement Changes, and/or Subordinate Financing" Section of the FNMA 1003 (Uniform Residential Loan Application) the amount of the unsecured funds.

o	Reserve Funds - There is no requirement for payment reserves after closing.

Updating Documents - When updating expired verification of funds documents, alternate documentation can be used. For example, when updating an expired Verification of Deposit, bank statements or print-outs may be used. Although one month current bank statement and bank printout may be used to update funds, these cannot be used to initially verify funds.