When utilizing a bank to fund the purchase of your home, your current credit score is important, but so are your bank accounts. Once you have been pre approved by a lender and you know what your budget is to purchase a home, you should also find out from your bank contact what your estimated closing costs will be. The closing costs include a down payment, homeowner's insurance for one year, an appraisal fee, bank loan origination fees, prepaid taxes on the home, attorney's fees, and title insurance fees. While the deposit paid once you are under contract to purchase a home can be credited toward the closing cost total, you should be aware that you will need to demonstrate to the bank during the underwriting process that you have access to these liquid funds in order to close and pay the closing costs. Many clients accept gift funds or borrow from retirement funds in order to have enough liquid cash to pay closing costs. Banks always ask for your last 3 months of bank statements.
The easiest way to breeze though underwriting is to have enough liquid cash in your bank accounts prior to the three months of bank statements that the bank asks to see. For example, if you are pre approved in January and you are estimated to need $5,000.00 to close on a home, you should try to have the liquid funds in your bank account over 3 months before you make an offer on a home in order to breeze through underwriting.
If you accept gift funds within 3 months of underwriting, the person who gave you the funds will have to fill out a gift letter. Gift letters generally state that a specific person gave you a specific amount of money on a specific date and they do not expect to be repaid. Each bank wants the letter worded differently, so if you are in a situation where you need a gift letter, make sure your bank tells you exactly how to word the letter.
If you need to take money out of retirement funds in order to close on your home, make sure you inquire as to the length of time this process takes and what sort of penalty you may have for borrowing from your retirement. Try to be prepared so you aren't left with delays right before it is time to close.
Disclaimer: The information above is based upon typical banking processes in New York State and the information should not be used for anything other than general guidance. If you have questions about your specific situation, please contact the bank you are working with or your Realtor or Attorney.