Don’t Let Cash Blow Up Your Home Purchase: How Cash Deposits Can Kill Your Mortgage Deal
Don’t Let Cash Blow Up Your Home Purchase: How Cash Deposits Can Kill Your Mortgage Deal
Buying a home is stressful enough. The last thing you want is one innocent cash deposit to raise red flags, slow underwriting, or put your closing at risk. If you’re preparing to buy, here’s what you need to know about cash deposits and mortgage rules, explained simply so you can protect your deal and close on time.
Why Cash Deposits Are a Red Flag for Mortgage Approval
Lenders and title companies must verify where every dollar of your down payment and closing funds comes from. When you suddenly deposit a large amount of cash during the loan process, it creates problems:
- Unverified funds: Cash is the hardest to document.
- Underwriting delays: Lenders may request extra paperwork like bills of sale, gift letters, or account histories.
- Closing risks: If you can’t prove where the cash came from, the lender may not allow you to use it — leaving you short on cash to close.
- Legal concerns: Banks run anti–money laundering checks. Unexplained cash can trigger Suspicious Activity Reports (SARs) and even legal scrutiny.
The Risk in Plain English
Two big rules to keep in mind:
- Banks must report large cash deposits (typically over $10,000) to federal authorities.
- Splitting deposits to avoid reporting is illegal. This is called “structuring,” and it creates even bigger problems for your mortgage approval.
Real-World Example: How a Cash Deposit Jeopardized Closing
Imagine you deposit $12,000 in cash just one week before closing. Your lender flags the deposit and asks where the money came from. You don’t have paperwork proving it was yours. Now the underwriter requires:
- Additional bank statements
- A signed gift letter (if it was gifted money)
- A bill of sale (if it came from selling something)
If you can’t provide acceptable documentation, the lender won’t let you use that $12,000 toward closing. Even though you still qualify for the loan, you’re suddenly short on funds — and without enough verified money, the purchase could fall through.
What To Do Instead: Safe Ways To Move Money for a Mortgage
If you want to avoid headaches, here are practical steps to handle deposits the right way:
1. Plan Ahead
Move funds into your bank account before you start the loan process — ideally weeks before applying.
2. Document Everything
- Selling an item? Keep a bill of sale and proof of payment.
- Receiving a gift? Get a signed gift letter and proof that the donor had the funds.
3. Use Traceable Transfers
Prefer wire transfers, cashier’s checks, or direct bank transfers. These create a clear paper trail that underwriters trust.
4. Communicate Early
Tell your loan officer and your bank if you plan to deposit a large sum. Ask what documents they’ll need upfront.
5. Don’t Split Deposits
Never break up cash into smaller amounts to “fly under the radar.” This is illegal and creates more scrutiny.
6. Ask a Pro First
Not sure how to document funds? Don’t risk your deal by guessing. Call me before you deposit any cash so I can guide you on exactly what’s acceptable.
Bottom Line: Protect Your Mortgage Approval
Unexplained cash deposits won’t stop you from qualifying if your income and credit are strong — but they can leave you short on acceptable funds to close. Be proactive, document everything, and use traceable funds. That keeps underwriting smooth, escrow on schedule, and you walking into your new home with confidence.
Call me directly at (562) 620-7662 or (562) 762-7511 before you move money. I’ll walk you through the right way to handle deposits so you close on time — without surprises.
