A mortgage expert has pointed out something that many first-time buyers don't know, which might affect them purchasing their first house.
Laura Judkins, who works for Mid-Continent Funding Inc, explained in a TikTok video the idea of "seasoning" your bank account before getting your mortgage, and why doing so is important.
She told Newsweek: "We don't think people are aware of the concept generally, but that's our opinion. Not only do we run into many issues with our own homebuyers, but we see a lot of engagement from users on this topic when we post about it.
"Most of the comment falls along the lines of, 'well it's my money, it shouldn't matter what I do with it'."
Seasoning your bank account is the idea that money should be deposited over time and well before you apply for a mortgage, rather than one big amount right beforehand.
In the TikTok video, which received 3.5 million views, Judkins explains: "If you're going to be depositing a large amount of cash into your bank account when buying a home, you'll need to be able to verify where those funds came from.
"If you tell us 'it's cash you had saved up', but [you are] not able to verify a source, we may not be able to consider the cash funds. Basically, you can't use that money."
She wrote in the text overlay of the video: "Our advice, deposit those funds 60-90 days ahead of time so the funds become seasoned in your bank account."
There are a number of reasons this is important, Judkins told Newsweek.
"Seasoning requirements help ensure that the funds being used for the down payment, closing costs, or reserves are legitimate and not obtained through fraudulent means, such as a last-minute loan or illegal activities," she said.
Seasoned funds also "confirm the borrower's financial stability" as funds that have been in an account for a long time indicate the person's ability to manage money. Judkins also points out that funds lodged into an account right before a mortgage application may indicate "the borrower has taken out an undisclosed loan."
Meanwhile, agencies such as Fannie Mae, Freddie Mac, FHA, or VA often require proof of seasoned funds.
If funds are a gift, then lenders require "a gift letter to document the source." Judkins said: "Seasoning helps ensure transparency and prevents borrowers from using unverified sources of money."
She also pointed out that seasoned money helps to "deter money laundering by ensuring that funds used in the transaction come from traceable, legitimate sources."
The viral video received thousands of comments from TikTok users sharing their thoughts.
"Cash I saved up from working and not spending it. Would that not be a viable response?" said @Zestyseal.
Meanwhile, @user767192548074 commented: "It's none of the banks business how I got my deposit it's my deposit."
"It's cash I've been saving since I was 6 years old. I have no receipts," Fuego Frank Creations shared.
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