What Are Seasoned Funds for a Down Payment?

Quick Answer

Funds deposited in your bank accounts more than 60 days before you apply for a mortgage are considered “seasoned” by lenders.

Woman writing in red notebook.

When mortgage lenders speak of "seasoned money" for a down payment on your home, they mean money you've possessed for a certain period of time—commonly 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.

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 loan's 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 they're making an evaluation, the lender will need to understand its origin. They'll ask you to document the source, the reason it was deposited and whether you're expected to pay back in the future. If the same funds were seasoned—meaning they were already in your bank account when the evaluation began—the lender most likely wouldn't require you to document their source.

Does All Down-Payment Money Need to Be Seasoned?

It's not necessary for all the money you put toward your down payment to be seasoned.

It's fairly common for homebuyers—especially first-time buyers—to 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). It's also common, and completely legit, for those gifts to change hands a short time before a home purchase is finalized.

If gift money isn't 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 you're required to pay back the sum, even if there's 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 If You Can't Season Your Funds?

A lender's financial review includes detailed examination of at least 60 days' worth of bank statements, for which every transaction must be accounted. Paycheck deposits and bill payments may be verified from stubs and statements. Deposits of contributions from family can be explained via gift letters. A deposit from the sale of a vehicle can be documented with a bill of sale, etc.

If there are any deposits that cannot be sourced with a paper trail, however—winnings from your office football pool, perhaps, or even money you've had hidden in a mattress somewhere and deposited for use in buying a house—the lender will not allow their use for a down payment, and will not include them in your financial assets when gauging your ability to make your mortgage payment. That's a good reason to arrange for any such funds to be seasoned before you submit your mortgage application.

The Bottom Line

Seasoning any large sums you plan to apply toward your mortgage down payment by depositing them at least 60 days before you submit a mortgage application can reduce your need to provide sourcing documentation for those funds. If you receive financial gifts or other significant cash infusions within 60 days of an expected home purchase, be prepared to show where those sums came from and to provide appropriate gift letters.

While your funds are seasoning, check your credit report and credit score to understand how lenders are likely to view your creditworthiness and, if necessary, consider taking steps to improve your credit before you apply for your mortgage. This will help put you in the best position possible to make your home purchase go smoothly.