Really interesting guideline for cash deposits. The borrower can deposit less than 50% of their total monthly income in cash and they won’t source it.
• Large deposits are considered to be a single deposit where any unsourced portion of the
deposit exceeds 50% of the combined gross monthly income of the borrower(s). If the deposit
includes both sourced and unsourced funds, only the unsourced portion is used to calculate
whether the deposit meets the 50% definition. Direct deposits, such as IRS or state income tax
refunds, transfer of funds between verified accounts, that are easily identified on the account
statement do not require documentation.
• Large unsourced deposits must be explained and verified.
• Requirements for documenting large deposits are as follows:
– Refinance transactions: Large deposits are not required to be sourced and explained
however, at underwriter discretion, explanation and sourcing may be necessary as
Freddie Mac requires any payment on borrowed funds be included in the DTI ratios.
– Purchase transactions: If the funds from a large deposit are needed for the down
payment, closing costs or reserves on the transaction documentation must be provided
that the funds are from an acceptable source. Any undocumented large deposit will be
deducted from the amount of verified funds and the reduced asset amount will be used
1. The borrower has a monthly income of $4,000 and a bank account with a balance of
$20,000. A deposit of $3,000 was made but $2,500 of the deposit is documented as the
borrower’s tax refund (sourced).
In this example only the $500 is considered “unsourced” ($3000 total deposit minus
$2500 tax refund) and is included in the large deposit calculation.
The unsourced $500.00 is only 12.5% of the borrower’s monthly income therefore it does
not meet the large deposit definition (50% of the borrower’s total monthly qualifying
income). In this example, documentation is not required and the entire $20,000 balance in
the borrower’s bank account may be used for underwriting purposes.
2. The same borrower has a deposit of $3,000 but only $500 is documented as the
borrower’s tax refund (sourced) leaving $2,500 has unsourced.
In this example the unsourced $2,500 is 63% of the borrower’s $4,000 monthly income
which does meet the definition of a large deposit.
The unsourced $2,500 must be deducted from the borrower’s $20,000 bank account
balance leaving $17,500 that may be used for underwriting purposes.
3. The same borrower has 3 separate unsourced deposits of $1800 which technically does
not meet the 50% of the borrower’s gross monthly income requirement since each deposit
is less than $2,000 (50% of $4,000) however at underwriter discretion
sourcing/documentation may be required