© Freddie Mac Single-Family Seller Servicer Guide
This section describes eligibility and documentation requirements for sources of funds used to qualify the Borrower for the Mortgage transaction (i.e., any funds required to be paid by the Borrower and Borrower reserves). Eligible sources of funds are listed in the charts
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in Sections 5501.3(b)(ii)
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and 5501.3(c)
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below.
(a) General documentation requirements
All documentation of funds used to qualify the Borrower for the Mortgage transaction must meet the requirements of this section
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and Sections 5102.3
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and 5102.4.
(i) Requirements for direct account verifications and asset account statements
Direct account verifications and asset account statements used to verify the Borrower's accounts held in financial institutions must meet the following additional requirements:
- Direct account verifications (i.e., verification of deposit form (VOD)) must:
- Identify the financial institution
- Identify the account owner(s)
- Identify the account number, which at a minimum must include the last four digits
- Identify the type of account
- Identify account open date
- Identify the current account balance
- Identify the average balance for the previous two months
- Identify any outstanding loans secured by the asset
- Include the title, signature and phone number of the depository representative who completed the verification
When using a direct account verification, the Seller must include documentation of the source of funds when an account is opened within 90 days of verification and/or when the current balance in an account is significantly greater than the average balance.
- Asset account statements must:
- Identify the financial institution
- Identify the account owner(s)
- Identify the account number, which at a minimum must include the last four digits
- Show all transactions
- Show the period covered
- Show the ending balance
- Show any outstanding loans secured by the asset
A transaction history that is computer-generated and downloaded by the Borrower from the Internet or by a financial institution representative from the institution's system is acceptable. The transaction history must identify the name of the institution and the source, and includes the information required above for asset account statements, unless:
- It is used in combination with other asset verifications containing the missing information, and
- It can clearly establish that the transaction history pertains to the same account
(ii) Third-party asset verifications
Asset verifications obtained through third-party verification service providers are acceptable. The verifications must be received by the originator directly from the third-party verification service provider and must contain the same information as required for direct account verifications or asset account statements above.However, when the verification is generated electronically and is not completed or provided by a representative of the employer or the depository institution, as applicable, the representative's information is not required.If any required information is missing, the Seller must obtain additional documentation to supplement the third-party verification. The Seller is responsible for ensuring the accuracy and integrity of the information provided by the third-party verification services.
(iii) Evaluation of deposits in the Borrower's accounts
(A) Deposits requiring verification
Except as stated below, the Seller is not required to document the sources of unverified deposits for purchase or refinance transactions. However, when qualifying the Borrower, the Seller must consider any liabilities resulting from all borrowed funds.For purchase transactions, when evaluating deposits in the Borrower's accounts, the following requirements apply:
- The Seller must document the source of funds for any
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- "large deposit,"
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- as described below, if the deposit is needed to qualify the Borrower for the Mortgage transaction
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- (i.e., any funds required to be paid by the Borrower and Borrower reserves)A "large deposit" is any single deposit exceeding 50% of the sum of:
- The total monthly qualifying income for the Mortgage and
- The amount derived from the asset calculation for establishing the debt payment-to-income ratio in accordance with the requirements of Section 5307.1, if applicable
- When a single deposit consists of both verified and unverified portions, the Seller may use just the unverified amount when determining whether the deposit is a large deposit as described above
- When a large deposit is not verified and is not needed to qualify the Borrower for the Mortgage transaction (i.e., any funds required to be paid by the Borrower and Borrower reserves), the Seller must reduce the funds used for qualification purposes by the amount of the unverified deposit. For Loan Product Advisor®
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- Mortgages, the Seller must enter the reduced amount of the asset into Loan Product Advisor.
- When the source of funds can be clearly identified from the deposit information on the account statement (e.g., direct payroll deposits) or other documented income or asset source in the Mortgage file (e.g., tax refund amounts appearing on the tax returns in the file), the Seller is not required to obtain additional documentation.
(B) Acceptable sources of deposit
When a deposit requires verification as stated above, the Seller must determine:
- Whether the source of the deposit is acceptable
- That the funds belong to the Borrower, and
- That the funds are eligible for the transaction
Acceptable sources include, but are not limited to:
- The Borrower's income
- Funds awarded to the Borrower (e.g., disaster relief funds, lottery winnings, court-awarded settlement) provided the source is not an interested party to the real estate or Mortgage transaction
- Funds derived from eligible asset types stated in
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- Sections 5501.3(b) and 5501.3(c) below
(b) Special requirements for Borrower personal funds
(i) Minimum Borrower contribution
For a purchase transaction Mortgage, the Borrower must make a minimum contribution from Borrower personal funds when specifically required in the Guide, as summarized in the chart below.
| Minimum contribution from Borrower personal funds | |||
| Mortgage type | Guide section number | Mortgages with LTV/TLTV/HTLTV ratios ≤ 80% | Mortgages with LTV/TLTV/HTLTV ratios > 80% |
| Mortgage secured by a 1- and 2-unit Primary Residence | N/A | None | |
| Mortgage secured by a | |||
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| 3- |
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| and 4-unit Primary Residence | N/A | None | N/A |
| Mortgage secured by a second home | 5501.3(c) | None | 5% of value, when gift funds or grants are used for the transaction |
| Mortgage secured by an Investment Property | 4201.16 | All funds used for the transaction must be Borrower personal funds | |
| Mortgages with shared equity plans | 4204.5 | 5% of value (must be Owner-Occupant's personal funds) | |
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See Section 4501.10
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for requirements for minimum contribution from Borrower personal funds for Home Possible®
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Mortgages.
(ii) Eligible asset types and documentation requirements for Borrower personal funds
Asset types that are considered Borrower personal funds and the applicable documentation requirements are described in the chart below. The eligibility and documentation requirements apply to all funds used to qualify the Borrower for the Mortgage transaction, including reserves. Any limitations on the use of an asset type are specified in the chart.All accounts held in financial institutions must be owned by the Borrower and the Borrower must have access to the funds. Funds in accounts that are owned jointly by the Borrower and a non-Borrower are considered Borrower personal funds.For Loan Product Advisor Mortgages, the Documentation Level shown on the Feedback Certificate indicates the minimum level of documentation acceptable for a Loan Product Advisor Mortgage. The Seller must provide the documentation required in this chapter for the Documentation Level returned.All Manually Underwritten Mortgages must at least be documented according to Standard Documentation.
| Asset type and eligibility requirements | Streamlined Accept documentation requirements | Standard documentation requirements |
1. Depository accounts Depository accounts used to deposit and withdraw cash, such as:
| Provide an account statement covering |
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| a one-month |
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| period or a direct account verification (i.e., VOD) | Provide account statement(s) covering |
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| a two-month |
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| period or a direct account verification (i.e., VOD) |
2. Securities Securities that are traded on an exchange or marketplace, generally available to the public such as:
Value must not include margin accounts. |
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Stock with limitations on its accessibility (e.g., restricted stock which as not vested and been distributed to the recipient) is not eligible. | Provide an account statement covering |
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| a one-month |
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| period or a direct account verification (i.e., VOD) | Provide account statement(s) covering |
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| a two-month |
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| period or a direct account verification (i.e., VOD) | |
If the Borrower does not receive a stock/security account statement:
See below for when evidence of liquidation is required* | |
3. Retirement accounts Independent retirement accounts and Internal Revenue Service (IRS)-qualified employer retirement plan accounts such as:
| Provide an account statement covering |
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| a one-month |
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| period or a direct account verification (i.e., VOD) | Provide account statement(s) covering |
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| a two-month |
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| period or a direct account verification (i.e., VOD) | ||
| See below for when evidence of liquidation is required* When evidence of liquidation is not obtained: In order to use the vested amount of an IRS-qualified employer retirement account to qualify the Borrower for the Mortgage transaction, the Mortgage file must include documentation confirming that the Borrower is permitted to make withdrawals, and severance from the Borrower's current employment is not required. | ||
4. Government bonds (federal, state or municipal) The value used must be based on the lower of the purchase price or current redeemable value. | Provide documentation verifying the ownership and the value. See below for when evidence of liquidation is required.* | |
5. Proceeds from a loan fully secured by the Borrower's assets other than real property The loan must not be provided by an interested party to the real estate or Mortgage transaction. When the loan is secured by a financial asset used to qualify the Borrower for the Mortgage transaction, the value of the asset must be reduced by the amount of the loan proceeds and any associated fees. | Provide the following:
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6. Proceeds from the sale or refinance of the Borrower's real property (including proceeds from a 1031 exchange or a bridge loan) For refinance Mortgages, the cash-out proceeds from the subject cash-out refinance transaction and any cash back received on the subject "no cash-out" refinance transaction are not eligible sources of funds | ||
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for reserves. | Provide the following:
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7. Proceeds from the sale of the Borrower's assets other than real property or exchange-traded securities The purchaser of the Borrower's asset must not be an interested party to the real estate or Mortgage transaction. | Provide the following:
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8. Borrower's real estate commission Borrower's real estate commission is an eligible source of funds for Down Payment and/or Closing Costs when the Borrower is a licensed real estate agent that is due to receive a sales commission from their purchase of the subject property. | The Settlement/Closing Disclosure Statement must reflect the commission earned by the Borrower and credited toward the Mortgage transaction. | |
9. Funds from a trust The Borrower must be the beneficiary and have access to the funds as of the date of the loan closing. The Borrower's portion of undistributed trust funds may be used | ||
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as reserves |
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only. | Provide a copy of the trust agreement or a signed statement from the trustee or trust manager that documents the following information:
When trust funds are needed for closing, evidence of receipt of the disbursed funds from the trust is required. | |
10. Individual Development Account (IDA) – Agency matching funds not subject to Recapture | ||
- Any matching funds may be considered Borrower personal funds
- A maximum of a 4 to 1 match by an Agency's funds is permitted
- The Borrower must satisfy any vesting requirements of the matching IDA program
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- The matching funds are not subject to Recapture
- The ratio of matching funds by the Agency
- Regular payments made to the IDA by the Borrower and the matching organization
- The vested balance or the percentage of vesting
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| Provide documentation of the IDA program verifying:
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11. Community Savings System accounts – Borrower contributions Funds on deposit in a Community Savings System that are deposited by the Borrower. A non-profit community organization must administer the savings system. | Provide Community Savings Systems account statements or a direct account verification identifying the non-profit community organization as the administrator and showing all Borrower contributions. | |
12. Pooled funds Pooled funds are funds on deposit provided by the Borrower and other member(s) of a group of Related Persons who: Have resided together for at least one year | ||
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, and Will continue residing together in the new residence, and Are "pooling" their funds to buy a home Funds provided by Related Persons who do not reside with the Borrower are subject to the requirements of the chart in Section 5501.3(c) for gift funds | Provide the following:
The written statement need not be notarized or acknowledged but must be kept in the Mortgage file. | |
13. Borrower's revolving credit card (charges/cash advances) or unsecured line of credit Borrower's revolving credit card (charges/cash advances) or unsecured line of credit used to pay fees associated with the Mortgage application process (e.g., origination fees, commitment fees, lock-in fees, appraisal, credit report and flood certifications) are subject to the following requirements:
And
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Refer |
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for instructions on delivering Mortgages where the Borrower uses a credit card, cash advance or unsecured line of credit to pay fees associated with the Mortgage application process. | Provide the following:
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14. Cash value of a life insurance policy (not the face value) The Borrower must be the owner of the policy and not the beneficiary. | Provide documentation from the life insurance company verifying the following information:
When cash value of the life insurance policy is needed for closing, evidence of liquidation is required. | |
15. Rent credits The portion of rental payments paid by the Borrower credited towards the Down Payment and/or Closing Costs under a documented rental/purchase agreement. The credit must not exceed the difference between the market rent and actual rent paid. The rental/purchase agreement must have an original term of at least 12 months and the rent must be based on a minimum of 12 months rental payments. | Provide the following:
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16. Trade equity: Net proceeds of the trade-in of the Borrower's previously owned residence The Borrower's equity in the previously-owned residence is determined by subtracting any outstanding liens on the previously-owned residence, plus any transfer costs, from the lesser of the appraised value of the previously-owned residence or its trade-in price as shown in the trade-in contract. | Provide the following:
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*When assets that are invested in stocks, bonds, mutual funds, U.S. government securities, retirement accounts or other securities are needed for closing, evidence of liquidation is required unless the combined value of the assets is at least 20% greater than the amount from these assets needed for closing.
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for additional sources of Borrower personal funds for Home Possible®
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Mortgages.
(iii) Earnest money deposit (EMD)When an EMD for a purchase transaction is used to qualify the Borrower for the Mortgage transaction, the Seller must obtain evidence that the EMD check cleared the Borrower's account (e.g., copy of the canceled check, asset account statement or written statement from the EMD holder verifying receipt of the funds).When the EMD is needed to meet the minimum contribution from Borrower personal funds, the Seller must:
- Verify that the source of the EMD is an eligible asset type and document it in accordance with the applicable requirements in this section
- Provide account statement(s) (based on Streamlined Accept or Standard documentation requirements, as applicable) or a direct account verification (i.e., VOD) that covers the period up to and including the date the EMD funds cleared the account
The EMD must not be counted twice in the evaluation of the Mortgage (i.e., deducted from the funds to close and counted in assets).
(iv) Business assetsFunds from a Borrower's business account may be used to qualify the Borrower for the Mortgage transaction, provided they meet the requirements of this chapter, except as stated below.Documentation of large deposits, as described
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in Section 5501.3(a)(iii), is not required provided that the Seller:
- Reviews a minimum of the most recent two months of the business account statements, and
- Determines the deposits are typical for the Borrower's business
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for additional requirements when self-employed income from the business is used for qualifying.
(v) Source of funds from outside the United States and its territoriesWhen the source of funds needed for closing is, or otherwise originates from, asset(s) located outside the United States and its territories:
- Funds must be transferred into a United States or State regulated financial institution and verified in U.S. dollars prior to the closing of the Mortgage transaction, or
- Combined value of the assets must be at least 20% greater than the amount from these assets needed for closing
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for additional requirements when funds from outside the United States and its territories are used to qualify the Borrower for the Mortgage transaction.
(c) Special requirements for other eligible sources of fundsOther sources of funds eligible to be used to qualify the Borrower for the Mortgage transaction and the applicable documentation requirements are described in the chart below. The eligibility and documentation requirements apply to all funds used to qualify the Borrower of the Mortgage transaction including reserves. Any limitations on the use of an asset type are specified in the chart.For Loan Product Advisor Mortgages, the Documentation Level shown on the Feedback Certificate indicates the minimum level of documentation acceptable for a Loan Product Advisor Mortgage. The Seller must provide the documentation required in this chapter for the Documentation Level returned.All Manually Underwritten Mortgages must at least be documented according to Standard Documentation.
| Asset type and eligibility requirements | Streamlined Accept and Standard Documentation requirements |
1. Gift funds or a gift of equityGift funds or a gift of equity is an eligible source of funds for a Mortgage secured by a Primary Residence or second home provided that:
When a Mortgage is secured by a second home and the LTV/TLTV/HTLTV ratio is greater than 80%, the gift is permitted only if the Borrower has made a Down Payment of at least 5% from Borrower personal funds as described |
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in Section 5501.3(b). Gift funds or gift of equity are not an eligible source of funds for Investment Property Mortgages. | Provide a gift letter signed by the donor. Information provided in the gift letter must:
Gift funds: If the verifications provided in the Mortgage file do not show evidence that the gift funds have been deposited in the Borrower's account, the Borrower must provide evidence of the transfer of funds from the donor to the Borrower. Gift of equity: A gift of equity must be reflected on the Settlement/Closing Disclosure Statement. |
2. Gift funds received as a wedding gift Gift funds received as a wedding gift from unrelated persons and/or Related Persons is an eligible source of funds for a Mortgage secured by Primary Residence. The gift funds must be on deposit in the Borrower's depository account within 60 days of the date of the marriage license or certificate. | Provide the following:
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3. A gift or grant from an Agency A gift or grant from an Agency that does not have to be repaid is an eligible source of funds provided that:
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Gifts and grants from Agencies are not eligible sources of funds for second home and Investment Property Mortgages. | Provide documentation supporting a gift or grant from an Agency. Examples of acceptable documentation include copies of grant program materials, award letters or terms and conditions provided to the Borrower. The documentation must:
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4. Individual Development Account (IDA) – Agency matching funds subject to Recapture Agency matching funds subject to Recapture is an eligible source of funds provided that:
| Provide documentation of the IDA program verifying:
Documentation of matching funds subject to a Recapture provision must also meet the requirements of this chart for a gift or grant from an Agency, except that the Seller does not have to establish that the funds do not have to be repaid. |
5. Proceeds from an unsecured loan that is an Employer Assisted Homeownership (EAH) Benefit Proceeds from an unsecured loan that is an EAH Benefit is an eligible source of funds provided that the eligibility and documentation requirements |
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are met. |