As a financial advisor with years of experience in the mortgage industry, I understand the importance of having a solid financial foundation when applying for a home loan. One of the key aspects that lenders look at is the stability of your income and the source of the funds you intend to use for the down payment or closing costs. This is where the concept of seasoning comes into play.

Seasoning refers to the process where funds must be in your account for a certain period of time before they can be considered as valid for a mortgage transaction. The purpose of this is to ensure that the funds are not borrowed or obtained through illicit means, and that you have a history of managing those funds responsibly.

The duration for which funds need to be seasoned can vary depending on the lender and the specific requirements of the mortgage program you are applying for. However, a common period that is often mentioned is 60 days. This means that the funds should be in your account for at least two full statement cycles before they can be used towards the mortgage. The reason for two statement cycles is to provide a clear and verifiable history of the funds being in your account.

Here's a more detailed breakdown of how seasoning works:


1. Source of Funds: Lenders want to ensure that the funds for the down payment and closing costs come from a legitimate source. This could be from your savings, a gift from a family member, or a loan from a financial institution.


2. Documentation: Along with the seasoning period, you will also need to provide documentation that clearly shows the source of the funds and the history of those funds in your account. This can include bank statements, gift letters, or loan documents.


3. Bank Statements: Lenders will typically ask for recent bank statements to verify the seasoning of the funds. These statements should show a consistent history of the funds being in your account and not just deposited shortly before the application.


4. Gift Funds: If the down payment is a gift, the lender will require a gift letter from the giver stating that the funds are a gift and not a loan. Additionally, the giver's bank statement will be needed to show that the funds were taken from their account.


5. Investment Accounts: If the funds are coming from investments or stocks, the seasoning period may be different. Lenders may require documentation showing that the investments have been held for a certain period of time.


6. Exceptions: There may be exceptions to the seasoning rule. For example, some lenders may allow funds that have been recently deposited if they can be traced back to a legitimate source and if the borrower has a strong financial history.

7.
Loan Approval: The seasoning of funds is just one part of the loan approval process. Lenders will also consider your credit score, debt-to-income ratio, employment history, and other factors.

It's important to note that the seasoning requirements can change based on the economic environment and regulatory guidelines. Therefore, it's always best to check with your lender for the most up-to-date requirements.

In conclusion, seasoning of funds is an important step in the mortgage application process. It helps ensure that the funds you use for your home purchase are legitimate and that you have demonstrated the ability to manage those funds responsibly. While the typical seasoning period is 60 days, it's crucial to work with your lender to understand their specific requirements and ensure that your application is as strong as possible.

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Then -- if it is needed for the mortgage transaction -- that money will have to be --seasoned-- for a period of 60 days, meaning those funds are ineligible for use toward the mortgage until two statement cycles have passed. Then those funds will be eligible.Mar 19, 2013read more >>