Lenders call money that was put into your bank account more than 60 days before you apply for a mortgage “seasoned.”
When mortgage lenders speak of “seasoned money” for a down payment on your home, they mean money youve possessed for a certain period of timeâcommonly 60 days.
Lenders require seasoning of large portions of your down payment to avoid potential fraud and the use of funds from criminal activities to make home purchases.
Buying a home is an exciting milestone in life. But it also takes a lot of planning and getting ready, especially when it comes to money. A big question for people who want to buy a house is how long the money has to be in the account in order to get a loan. This is called “mortgage seasoning,” and lenders make it a must that you do it.
In this article we’ll provide a detailed explanation of mortgage seasoning, why lenders require it typical seasoning periods for down payments and refinances, exceptions, and tips on what to do during the seasoning period. Let’s get started!
What Is Mortgage Seasoning?
Mortgage seasoning is the amount of time that your money has been in your bank account before it is used for a down payment and closing costs.
Lenders want to see that the large amounts you’re using for down payments and closing costs are ones that you’ve earned and saved up over time, not ones that you just put in. This helps give you peace of mind that the money is yours and not someone else’s or something you got illegally.
Seasoning requirements generally apply to down payment funds but may also come into play when refinancing and in some cases after bankruptcy or foreclosure.
Why Do Lenders Require Seasoning?
There are a few key reasons why lenders impose seasoning requirements:
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To cut down on mortgage fraud, seasoning helps make sure that the money for your down payment comes from a real source and not a sketchy one. This prevents fraud.
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To prove financial stability – Accumulating down payment funds over months shows financial restraint and stability.
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To confirm you aren’t borrowing down payment – Borrowed funds would need to be disclosed and explained while seasoned funds clearly are yours.
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To qualify refinancing – Making payments on time for a period before refinancing proves you are capable of managing the new loan.
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To re-establish credit after bankruptcy/foreclosure – Waiting periods help you rebuild credit and finances to qualify again.
By requiring seasoning, lenders are able to mitigate risk and feel more confident approving borrowers.
What Are Typical Mortgage Seasoning Requirements?
Typical seasoning requirements depend on whether you are seasoning funds for a down payment or refinancing a loan. Here are some common standards:
Down Payment Funds
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60-90 days – Most lenders require down payment funds to be seasoned for 60-90 days. Money must be parked in your account during this time.
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2 month’s bank statements – Lenders will want to see 2 months of bank statements to verify funds have been sitting there and identify any large deposits.
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Document large deposits – You must also document where any large deposits came from such as an investment account, retirement fund, or gift.
Refinancing a Mortgage
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6 months – Most lenders require you to have made 6-12 months of payments on your current mortgage before refinancing. This proves you can handle the new loan.
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1 year after foreclosure – Refinancing usually requires waiting 1 year if the home was a foreclosure or short sale. This re-establishes your credit.
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Government loans – FHA, VA and USDA loans may have different seasoning standards for refinancing that are shorter than conventional loans.
After Bankruptcy/Foreclosure
- 2-7 years – Having to wait 2-7 years after bankruptcy or foreclosure to buy again is also a form of seasoning. This period helps you rebuild your credit and finances. Government-backed loans may allow shorter periods.
As you can see, lenders universally want to see money “seasoned” for some period before using it for major financial events like a home purchase.
Are There Any Exceptions To Seasoning Rules?
While seasoning is quite common, there are some exceptions:
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Employer bonuses and tax refunds deposited in your account usually do not need to be seasoned.
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Small bank accounts may not require seasoning when used for down payments and closing costs.
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Portfolio lenders may waive or reduce seasoning requirements by evaluating your overall financial picture rather than mandating a set period.
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Documentation can sometimes substitute for seasoning if you provide records proving where funds originated and that they are rightfully yours.
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Government-backed loans like VA and USDA programs may provide more flexibility if you can prove extenuating circumstances.
The most leeway comes from smaller portfolio lenders willing to look at your whole situation rather than imposing blanket requirements. Talk to loan officers to learn about exceptions.
What Should You Do During The Seasoning Period?
If you need to season funds for a down payment, here are some tips:
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Move funds to your primary checking/savings account ASAP once you start planning a home purchase. They need to sit there for 60-90+ days.
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Specifically designate the down payment savings within your account so it’s clear on statements.
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Minimize withdrawals from the account during seasoning except for adding more savings. Large withdrawals can raise questions.
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Keep collecting supporting records on where any large deposits came from to show lenders.
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Shop lenders early so you know their requirements and can time your offer/contract.
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Ask the lender to review bank statements and documents upfront before making an offer. This avoids issues.
Proper planning and preparation with your down payment funds makes seasoning an easy requirement to fulfill when obtaining a mortgage.
The Bottom Line
Seasoning is an important concept all homebuyers should understand when applying for a home loan. While requirements vary, most lenders want to see down payment funds seasoned for 60-90 days in your accounts to ensure the money is stable and rightfully yours. Refinancing and rebounding from bankruptcy/foreclosure also have seasoning rules to follow.
Knowing what a lender will expect and properly planning ahead makes it easy to meet seasoning standards. By following the tips above, you can position yourself to smoothly prove funds are seasoned and ready to be used to achieve the dream of homeownership.
Why Do Lenders Require Money to Be Seasoned?
When a lender is considering your mortgage application, both the law and their lending policies typically require them to scrutinize your finances to gauge whether you can afford the loans monthly payments. Lenders usually look at your pay stubs, bank accounts and other assets, and examine your monthly debt obligations to understand where your money comes from and where it goes.
If a large sum suddenly appears in your bank account as theyre making an evaluation, the lender will need to understand its origin. Theyll ask you to document the source, the reason it was deposited and whether youre expected to pay back in the future. If the same funds were seasonedâmeaning they were already in your bank account when the evaluation beganâthe lender most likely wouldnt require you to document their source.
Does All Down-Payment Money Need to Be Seasoned?
Its not necessary for all the money you put toward your down payment to be seasoned.
Its fairly common for homebuyersâespecially first-time buyersâto use financial gifts from family members as part of their down payments (relatives can give up to $16,000 each without triggering income tax penalties). Its also common, and completely legit, for those gifts to change hands a short time before a home purchase is finalized.
If gift money isnt in your possession long enough to be seasoned, the lender will require you to provide a “gift letter.” This letter is typically signed by both the gift giver and you as the recipient and states there is no expectation of repayment. (If youre required to pay back the sum, even if theres no time limit attached to that obligation, the money is a loan not a gift, and the lender must group it with your debts.) The specific language required for a gift letter varies a little by mortgage type, so check with your real estate attorney or loan officer to make sure you provide a properly worded gift letter.
What’s the Best Way to Save for a Mortgage Downpayment?
FAQ
How long does money have to sit in your account to buy a house?
For most lenders, money used for a down payment needs to “season” in your account for 60 to 90 days before you apply for a mortgage.
How long do you need a bank account to get a home loan?
Most lenders require that money for a down payment and other upfront expenses has existed in an established account belonging to the borrower for at least 60 days. This shows a lender that the funds didn’t come from a temporary or fraudulent source.
How long do funds need to be in account for a down payment?
Lenders are becoming stricter about tracking the source of funds for down payments. Be prepared to provide at least 90 days of financial history for all funds used for your deposit and down payment. Avoid transferring large sums in and out of the account, instead holding your down payment during the purchasing process.
How long do I need to show income for a mortgage?
For most conventional mortgages, lenders typically want to see at least two years of stable income history. This usually involves providing documentation like pay stubs, W-2s, and tax returns from the past two years.