Is the Mortgagee required to verify an earnest money deposit?

The Mortgagee must verify and document the earnest money deposit amount and source of funds if the amount of the deposit exceeds one percent of the sales price or is excessive based on the Borrower’s history of accumulating savings, by obtaining:

•             a copy of the Borrower’s canceled check;

•             certification from the deposit-holder acknowledging receipt of funds;

•             a Verification of Deposit (VOD) or bank statement showing that the average balance was sufficient to cover the amount of the earnest money deposit at the time of the deposit; or

•             direct electronic verification by a Third Party Vendor (TPV) , subject to the following requirements:

o             the Borrower has authorized the Mortgagee to verify assets;

o             the date of the completed verification conforms with FHA requirements in Maximum Age of Mortgage Documents (see Handbook  4000.1, Section I.A.1.a.i.(A)(1); and

o             the information shows that the average balance was sufficient to cover the amount of the earnest money deposit at the time of the deposit.
 

If the source of the earnest money deposit was a gift, the Mortgagee must verify that the gift is in compliance with the requirements related to Gifts (Personal and Equity) in Handbook 4000.1, Sections II.A.4.d.iii.(F) and II.A.4.5.c.iii.(F).

For additional information see Handbook 4000.1, Sections II.A.4.d.i.(A) and II.A.5.c.i.(A) available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh


All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-05313