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Mortgage Lender Learns No Source, No Seasoning

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW 646

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A new mortgage lender is curious about the term, no source, no seasoning. Sam and Ilyce explain how the paper trail for the money used in the transaction most be well documented and established.

Q: I am a new mortgage broker in Florida and shopping mortgages for my customers.
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What does the term "no source-no seasoning" mean. Also, does a customer’s money need to be in specific account or can they bring the check to the closing?

A: It’s surprising that the company you work for or the end lenders you have talked to you have not given you an explanation for this term.

In order for home buyers to borrow money, they generally have to show that they have a certain amount of money in the bank to pay for the initial deposit for the purchase of the home, for the closing costs relating to the purchase or to make sure they have enough assets and can afford to maintain the payments for the home in the future.

If the prospective borrower has money in bank accounts, the lender must make sure that the money in those accounts has been there for some time and any recent deposits can be accounted for. A lender does not want to see deposits made all at one time only to find out that the borrower got the money from a relative – who expects to be paid back shortly after closing.

The sources of all funds have to be verified. In other words, the lender must know that the funds have been properly obtained by the borrower either because the borrower earned them, got them by virtue of a work bonus or commission from work, won the lottery, received an inheritance or a gift.

In any of these cases, the source of the funds is known and the funds rightfully belong to the borrower. That part is the “source” part of your question.

The seasoning part has to do with making sure the funds have been in the account for some time. If there was a large deposit into an account and a large withdrawal out of the account, the lender has to assume that the borrower obtained funds and got rid of funds as part of one transaction. Therefore, the large deposit would not really count for anything in terms of buying a home and obtaining a mortgage. If a year ago, a borrower obtained a large sum of money and the money has stayed in the account for that entire period of time, the funds would be considered “seasoned.”

Finally, the type of account that the funds are kept should not matter as long as the borrower has kept the funds in his or her name. The account can be a savings or checking account or even a money market account.

In terms of bringing the funds to closing, the funds can be brought by check. But the paper trail of that check must be from the account that had that money. If the lender knows that the borrower has limited funds, the lender may want to see that the funds from a specific account are being used and that the borrower is not receiving funds as a loan from a relative or somebody else. The lender wants to know that a borrower is using his or her own funds to buy a home.

Of course, it might be a bit embarrassing to ask your new boss what these terms mean. But most of the jargon that lenders spout at each other has meaning and it is important that you understand what’s going on. When in doubt, ask the underwriter in your lender’s office to explain any issues to you.

You will be better off knowing up front (and perhaps being a little embarrassed) than learning the hard way when your deal doesn’t close because of something you should have know early in the transaction.

Good luck in your new job.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website




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