Lenders have to verify where every dollar of your down payment and closing money came from. Money in a checking account has a statement behind it. Cash in a closet or a safe doesn't, so the job is to give it one. There are three ways to do that, and all of them work.
Why the source of the money matters
Borrowed money would be a hidden debt, so lenders trace every dollar of the down payment. Fannie Mae's guide says plainly that unverified funds can't be used for the down payment, closing costs or reserves. FHA requires your minimum required investment, the 3.5% down payment, to come from a documented source. Cash at home is perfectly legal savings. It just needs paper.
How each program treats cash saved at home
| Program | Cash on hand |
|---|---|
| FHA | Accepted. HUD calls it cash on hand. The lender verifies that it has been deposited in a bank or is held by the escrow or title company, and gets your written explanation of how much you saved and how you accumulated it. The underwriter then judges whether that is reasonable for your income, spending and banking history |
| Conventional (Fannie Mae) | Not accepted for the down payment or closing costs on standard loans. Fannie Mae's guide makes an exception for its HomeReady program |
| VA and USDA | The dependable route is to deposit the cash and let it season, the first path below |
Bank statements bring their own rule. FHA asks the lender to document any single recent deposit over 1% of the price or appraised value, whichever is lower. Fannie Mae calls a deposit large when it's over 50% of your monthly qualifying income. Either way, a cash deposit made during the statements the lender reviews gets a question.
A worked example: $12,000 saved over 30 months
Keisha earns $4,100 a month. For 30 months she has set aside $400 from each month's pay in cash, so she has $400 × 30 = $12,000 at home. She wants a $290,000 home with FHA.
- Down payment at 3.5%: $290,000 × 3.5% = $10,150
- FHA's deposit line: 1% × $290,000 = $2,900
- Her savings rate: $400 ÷ $4,100 = 9.76% of her income
A $12,000 deposit is more than four times FHA's $2,900 line, so it will be documented one way or another. She has three paths.
| Path | What she does | When she can use it |
|---|---|---|
| Deposit and season | Deposits all $12,000 at once and waits until the two statements the lender reviews both open with the money already there | Two to three months after the deposit |
| FHA cash on hand | Deposits the cash, or brings it to the title company, and writes a letter explaining she saved $400 a month for 30 months | Right away, on FHA |
| Family gift | A parent gifts the $10,150 down payment from their own savings with a signed gift letter, and Keisha deposits her cash to season for later | Right away, on FHA or Conventional |
The cash on hand letter works for Keisha because the math holds up. Setting aside about 10% of her pay is believable, and an underwriter compares that against her income, her bills and how she has used bank accounts in the past. A buyer who earns $4,100 a month and claims $40,000 saved in six months would have a much harder time.
The seller can also pay her closing costs on FHA, up to 6% of the price, or $17,400 here. With that and her own $12,000, Keisha has the 3.5% down covered and money left for moving.
Mistakes that slow a cash deposit down
- Splitting the deposit. One deposit of the full amount is easier to explain than ten smaller ones, which each read as a separate source.
- Spending part of it after you deposit it. The lender verifies the balance again before closing, so the money has to still be there.
- Leaving it out of the conversation. Tell your loan officer about the cash at the first call. The path you take depends on the program and on how soon you want to buy, and that's a decision to make before you deposit it, while there's time to pick the fastest route.
If your cash won't cover everything, FHA 100% financing pairs the FHA loan with a down payment assistance second that covers the 3.5%, from a 580 score.
The cash to close calculator adds up the down payment, closing costs and seller credit for the price you have in mind. Before you take that cash to the bank, call AAA Capital Funding at 888-601-8344, and we'll tell you which of the three routes gets you to the closing table fastest.