This topic contains information on DU documentation requirements, including:
DU indicates the minimum verification documentation requirements necessary for the lender to process the loan application. This level of documentation may not be adequate for every borrower and every situation. The lender must determine whether additional documentation is warranted.
For depository assets (checking and savings accounts, money market funds, and certificates of deposit), DU will require two consecutive monthly bank statements (60 days of account activity).
Monthly bank statements must be dated within 45 days of the initial loan application date.
Quarterly bank statements must be dated within 90 days of the initial loan application date, and the lender must confirm that the funds in the account have not been transferred to another asset account that is verified with more current documentation.
When DU validates assets, DU issues a message indicating the acceptable documentation. Compliance with the DU message satisfies the requirement for documenting assets. This documentation may differ from the requirements described above. See B3-2-02, DU Validation Service
Enter the amount of a bridge/swing loan under Bridge Loan in Section VI Assets. Do not include the amount of the bridge loan in any other liquid asset. (For example, do not enter the amount of the loan both as a bridge loan and in a checking account, even if the loan funds have been deposited.)
Bridge loans should also be considered in the Net Equity calculation for properties that are Pending Sale. (In other words, the amount of the bridge loan should be subtracted from the net proceeds to avoid counting this asset twice.)
When cash deposit on sales contract (earnest money) is entered in Section VI Assets, DU does not consider it liquid. Therefore, in order to give the borrower credit for earnest money that is not already reflected in a liquid account, the lender must enter the earnest money amount as follows:
If the earnest money check has not cleared the borrower’s bank account, the amount can be included in a depository account, such as a checking or savings account.
If the earnest money check has cleared the borrower’s bank account, the amount can be entered as Other Credit in Section VII, where it is assumed to be verified.
Do not enter the amount in both places.
Gifts or donations from entities (grants) are permitted in accordance with B3-4.3-04, Personal Gifts, and B3-4.3-06, Donations From Entities. The entry of gifts or grants on the online loan application is as follows:
When a gift is entered in Section VI Assets as a gift, the funds are included in available funds. It is important that the gift amount is identified separately as a gift even if the funds have already been deposited in a liquid asset account owned by the borrower (such as a checking or savings account). The balance of the liquid asset account entered in the loan application must be adjusted accordingly to prevent duplicate entry of funds. For example, if the borrower’s verified checking account reflects a balance of $15,000, and $5,000 of that amount was from a gift, the checking account balance should be adjusted to reflect $10,000, and the $5,000 should be entered separately as a gift.
When a gift is entered in Section II as a source of down payment, the funds are not included in the available funds.
Some loan origination systems (LOS) may not provide a “gift” data entry option, or the gift entry may not map correctly to DU. (For example, the LOS may identify the gift as a checking account when the data is transmitted to DU.) The lender must ensure that gift information has been properly identified in DU.
For gift documentation requirements, see B3-4.3-04, Personal Gifts.
Enter a gift of equity in Section VI A.
A gift of equity must meet the gift of equity requirements defined in B3-4.3-05, Gifts of Equity.
When full REO data is entered, DU automatically calculates the estimated net equity from properties marked Pending Sale in Section VI R using the following formula:
((Present Market Value × 90%) – Amount of Mtgs. & Liens)
However, because full REO data is not required, the lender can calculate the net equity outside of DU and enter the amount (positive or negative) as Net Equity in Section VI A.
If net equity is calculated from data in Section VI R and is also entered in Section VI A, DU will use the amount from Section VI A.
If a bridge loan is obtained, the amount of the bridge loan should be subtracted from the net proceeds.
When the net equity is positive, DU will add the amount to the funds available for closing. When the net equity is negative, DU will subtract the amount from the funds available for closing.
When net worth of business is entered in Section VI A, DU does not consider it liquid. If the borrower is using proceeds from the sale of his or her business, the net proceeds should be entered in a depository account, such as a checking or savings account.
Enter the value of personal assets that will be converted to a liquid asset (or sold) prior to closing. For example, enter as Other Liquid Asset the net cash value of life insurance, automobiles, or other personal assets that will be sold, or the amount of pending tax refunds that will be received prior to closing. A verification message will require evidence of the value of the asset and confirmation that the asset was converted to cash.
Proceeds from properties that have already been sold should be included in a depository account, such as a checking or savings account.
Borrowers can borrow against an asset they own, such as a 401(k) account or real estate, according to the requirements of B3-6-05, Monthly Debt Obligations. The amount of the secured loan should be entered as Secured Borrowed Funds in Section VI A. The secured loan amount should be subtracted from the market value of the actual asset, and the net asset value should be entered in the appropriate field in Section VI A. For example, if the borrower has a vested value, less taxes and penalties, of $30,000 in a 401(k) account and borrows $10,000 against the 401(k), enter $10,000 as secured borrowed funds and enter $20,000 as retirement funds.
Loans that are secured against a liquid asset owned by the borrower (such as a 401(k) or mutual fund) do not have to be entered as liabilities in Section VI Liabilities if the appropriate documentation is provided.
Loans that are secured against real estate, or any other non-liquid asset, must be entered as liabilities in Section VI Liabilities.