Documenting Your Earnest Money Deposit (EMD)

Here we are again discussing earnest money deposits.  I have written about earnest money deposit before and have also talked about bank statements and how not to deposit any funds that cannot be proven.  However, I feel there is still some information that needs to be explained to fill in the puzzle pieces.

When it comes to documenting an earnest money deposit, sometimes it’s a little unclear as to what needs to be provided and why.  Let’s dig in!

When you write an earnest money deposit and you are obtaining a mortgage, you have to prove the source of that earnest money deposit.  Seems simple, right?  Well, what if you deposited cash just before writing that earnest money deposit check and without that cash you would not have had the funds to write the check?

If the cash cannot be proven with a proper paper trail (which almost never happens), that earnest money deposit is no good.  Now you have to replace the earnest money deposit with documented funds.  This can cause quite the paperwork mess and should be avoided along with receiving money from anyone other than an immediate family member.  Money from an immediate family member is considered a gift and with a gift letter and proper paper trail is acceptable for use in a mortgage transaction.

IMPORTANT!  The amount of non-proven cash you deposit is deducted from your available balance.  So, if your bank statement balance shows $6,000 and you deposited $3,000 cash, you now only have $3,000 to work with for the purchase of your home.

Once you have a documented earnest money deposit and it has cleared your account, you will need to provide an updated bank statement showing where the earnest money deposit cleared your account. On this statement the underwriter will also be looking for  your updated statement balance after the money cleared to make sure you show enough funds to close the transaction.  Most of the time an updated bank statement is not available, so an account activity printout is acceptable.  Here is what the printout must show to be acceptable:

  1. The web address in the header or footer of the printout to show that it came from your online account.
  2. Your first and last name, account number or partial account number to match up to the actual statement you provided.

The printout MUST cover the activity period from the closing date of the last actual statement you provided through current.  There can be NO GAP in asset activity.

IMPORTANT! Any new deposits that appear on this bank printout must also be proven.  Again, refer to my other article regarding bank deposits during a mortgage application for further information.

I have seen it more than once where buyer’s think they are past the point where a new bank statement will be needed and deposit funds that they cannot prove.  This will cause delays and sometimes a shortage of funds to close.

I hope this article helps you to have a smoother mortgage/real estate transaction.  If you should have any questions, please contact me at Jim@LoanJim.com or 810-444-0024.

Need to pre-qualify for your Michigan mortgage?  Simply click here to see how much and for what programs you qualify for.  No credit check required.

2018-01-24T02:27:21+00:00