Seasoning

Q. Can you explain “seasoning” to me I don’t understand the purpose of it?

A. The purpose of “seasoning of funds” is to ensure a borrower’s
viability.  Lenders want to make certain that the income and assets that borrowers claim on their loan application are legitimately their own. Conforming guidelines require that any funds used to satisfy down payment, closing costs and reserve requirements must come from the borrower's own resources.  On a practical level, this means that funds must be in the applicant's possession for at least two to three months or “seasoned”.  Typically this entails two to three months of bank statements or other documentation demonstrating that funds have been in the applicant's possession. 


Lenders are very concerned about potentially borrowed funds, because these would increase the borrower’s liabilities and may disqualify the borrower’s debt-to-income ratios.   The borrower must explain events that may indicate borrowed down-payment funds: 

1.  New account. A savings or checking account that was recently opened may indicate borrowed funds.

2.  Sudden deposit. An existing account that suddenly contains a significantly higher than average balance may indicate the deposit of unacceptable funds.

3.  New loans. A new loan may indicate that the applicant has borrowed money for the down payment.  A more serious event may be if the lender sees several inquiries on the credit report indicating that the borrower is racking up debt.  For example, if the borrower’s credit report shows several inquiries by car dealerships, the lender will want to know if the borrower has just obtained a car loan.

4.  Undocumented money. Due to verification difficulties, "cash on hand" and "mattress money" are not acceptable liquid assets with conforming loans; however, many non-conforming lenders will accept them. Lenders want to avoid “mattress money” and laundering money from criminal enterprises like drug profits.  Undeposited cash or "mattress money" will not be acceptable with conforming programs, primarily because those funds may be borrowed (which increases debt) or unreported income (which is illegal).  Applicants with substantial undeposited cash should deposit those funds immediately.  Unfortunately, that applicant may have to wait at least three months before applying for a conforming residential loan.  Note, however, that recent wages and salaries are often acceptable as sources for unseasoned funds.

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