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What Is Considered a Large Deposit for a Mortgage

What Is Considered a Large Deposit for a Mortgage
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Home.com Contributor

Can you ever have too much cash? Turns out you can when applying for a home loan — if it’s not properly documented, that is.

If you’re using a large lump sum of money, such as a gift from a relative or a year-end bonus, toward your home purchase, your mortgage lender needs to know where the money came from. They also need to know it’s not from an undisclosed second loan that will affect your debt-to-income ratio.

Its important to know that these requirements stem from the Patriot Act. This act requires that the finance industry report any suspicious customer behaviors, to prevent any terrorism-related money laundering.

Read on to learn what is considered a large deposit for a mortgage and how to document it.

What's in this Article?

What is a large deposit for a mortgage?
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Why do large deposits need to be sourced?
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How to source a large deposit for a mortgage
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FAQs
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Communicate with your lender
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What is a large deposit for a mortgage?

If you’re buying a home with a conventional loan, any deposit into your bank account that is 50% or more of the monthly income you used to qualify for a mortgage counts as a large deposit.

So if you earn $5,000 a month and your bank statement shows a deposit of $2,500, your lender’s underwriting team will want to know where the money came from and whether you need to pay it back.

But the large deposit threshold may be different depending which type of loan you’re using. With a USDA loan, your lender will need to verify any deposit that is more than 25% of your qualifying income. FHA loan and VA loan deposit thresholds are based on the sale price of the home.

Large deposits for a mortgage by loan type 

Loan Large deposit amount
Conventional50% of monthly income used to qualify
FHAMore than 1% of the home’s sale price
VAMore than 2% of the home’s sale price
USDA25% of monthly income used to qualify

But lenders may request documentation for smaller deposits as well.

“An underwriter always has the final say in determining what constitutes a ‘large deposit,’ and can ask for clarification based on the unique circumstances of each application,” said Robert Martin, a residential mortgage specialist with Fairway Independent Mortgage Corporation (Fairway owns Home.com). “Such things as several regular deposits, or a series of deposits, can all be questioned.”

Typically, only deposits made within the past 60 days will need to be sourced. However, if you provided more than 60 days’ worth of bank statements, an underwriter may still want to source deposits further back than 60 days. You’ll want to be prepared to provide these documents if needed.

Related reading: How to Buy a House in 11 Steps

Why do large deposits need to be sourced?

“Large deposits are not common and raise scrutiny around the source of the funds to make sure that the funds are allowable per federal regulatory guidelines,” said Joe Pessolano, a branch sales manager with Fairway.

If your lender questions a large deposit in your account, they may ask for a mortgage letter of explanation, as well as documentation of the transfer.

There are several reasons mortgage lenders must source all large deposits.

Debt-to-income ratio

Your debt-to-income ratio (DTI) is a key element in your mortgage application. Lenders need to assess whether you have sufficient income to afford your monthly payments plus your existing debts. A large deposit can be a red flag to lenders unless you can prove that the money didn’t come from another loan.

“A large deposit can indicate that you have borrowed money to use for your home purchase and there could be another debt that needs to be considered in your debt-to-income ratios, which could impact your ability to qualify for the mortgage,” Martin said.

If you did take out a loan to cover your down payment and closing costs, you need to tell your lender so they can update your application. With enough income and low enough non-housing debts, you may still be able to borrow the same amount for which you were initially approved.

But the new loan could raise your DTI enough to put you out of bounds for certain loan programs. Your lender could also deny your application or reduce the amount of money they’re willing to lend you. That’s why it’s best to talk to your mortgage lender before applying for additional financing. They will advise you on your best options, as well as any down payment assistance programs for which you may be eligible. 

“An underwriter always has the final say in determining what constitutes a ‘large deposit,’ and can ask for clarification based on the unique circumstances of each application.”

Robert Martin, Fairway Residential Mortgage Specialist

Income limits

“Why does it matter if you have what might be defined as a large deposit? It could mean you have another source of income,” Martin said.

“This can be both good and bad,” he continued. “Good if you need another source of income and the source qualifies to be used for mortgage purposes. It could be bad if the loan program you are applying for has an income cap and that other source of income were to put your annual income over that cap. You would no longer be eligible for that loan program.”

USDA loans, for instance, have income limits set at 115% of the area median income (AMI). Fannie Mae HomeReady and Freddie Mac Home Possible also have income limits.

“USDA will question any counter deposit that is not easily identified, due to the income limitations for the loan program,” Pessolano said. “They consider a large deposit as anything over 25% of the qualifying income. It’s always good to double-check and know the difference in program guidelines.”

Gift rules

Many loan programs, including conventional and government-backed mortgages, allow homebuyers to use gift funds from friends, relatives, and even employers. However, lenders must verify that the funds are being given as gifts — not as off-the-books personal loans that need to be repaid.

If you’re using gift funds for your down payment or closing costs, you’ll need to provide a gift letter, signed by you and the donor, stating the money is a gift and there is no expectation of repayment. You’ll also need to document the transfer of funds from the donor’s bank account to yours.

Related reading: How To Write a Gift Letter for a Mortgage (With Sample Template)

Although documenting a large deposit can add steps to the mortgage loan process, tracking significant sums of money is something all financial institutions must do. In fact, if you deposit, or receive a deposit, of $10,000 or more, your bank may take note as well, to follow federal anti-money-laundering rules.

How to source a large deposit for a mortgage

If you expect to receive a gift toward your home purchase, a large bonus, an inheritance, or another substantial sum of money before your close, let your loan officer know as soon as possible.

They will tell you what counts as a large deposit based on your loan type, and they’ll also explain the type of documentation you’ll need to provide.

“I always suggest to my clients that if they are having any questions about credit, money, or employment that they just give me a call sooner rather than later,” said Sandy Krestan, a senior loan officer with Fairway. “I can walk them through all of their options.”

The specifics of how to document your large deposit will depend on the loan program you’re using and the source of the money.

“Large deposits are not common and raise scrutiny around the source of the funds.”

Joe Pessolano, Fairway Branch Sales manager

Let’s say you had a great aunt who left you a generous gift of $100,000 in her will. The will and probate process will have been carefully documented, and there will be a paper trail showing how and when you inherited the money.

Perhaps you received a $10,000 bonus recently for exceeding your sales targets. Your lender may ask you to provide paperwork from your employer, along with transaction records showing that the money was sent by the company.

Or, maybe you recently sold your car and plan to use the sale proceeds to purchase your new home. In that case, you’d likely need to show the sale receipt, deposit slip, or bank account statement showing the sale.

Again, the earlier you tell your lender about any recent or upcoming large deposits, the better. They’ll tell you exactly what you need to provide to show the source of the deposit.

Related reading: How To Write a Mortgage Letter of Explanation (With Template)

What is considered a large deposit for a mortgage? FAQs

What’s considered a large deposit?

A large deposit for a conventional mortgage is 50% or more of the total monthly income used on your loan application. For a USDA loan, a large deposit is considered 25% or more of your income. The large deposit standard for an FHA loan is 1% of the home’s sale price, and for a VA loan, it is 2% of the home’s sale price.

Why do lenders care about large deposits?

Lenders source large deposits to ensure that you have not taken out an undisclosed loan that would affect your debt-to-income ratio and loan approval. If the deposit comes from a source of income, they must verify that you still meet any income limits that may be associated with the loan (if you are using a product that has income limits).

It is also a legal requirement for financial institutions for the purpose of protecting against terrorism-related money laundering.

Do lenders ask for proof of deposit?

Mortgage lenders will request proof of deposit for any funds needed to close on your loan or prove adequate reserves. So a copy of a check won’t be enough; you’ll need to prove the check was deposited with a bank statement. You will also need to document where the funds came from and whether they need to be repaid.

Communicate with your lender

Having a large deposit on your bank record won’t necessarily hurt your chances of closing your home loan. But you will need to provide the required documents and ask underwriters questions before the purchase can go forward. The earlier you talk to your lender about any recent or upcoming large deposits, the fewer hiccups there are likely to be on the path to buying your home.


Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.

Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.

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