To explain a cash deposit for a mortgage, write a short letter of explanation that names the source of the money, matches the exact date and amount shown on your bank statement, and attaches documentary proof — a gift letter, bill of sale, distribution statement, or similar record. Lenders ask because federal anti-money laundering rules tied to the Bank Secrecy Act and the USA PATRIOT Act require them to verify where your funds come from before finalizing a mortgage.1Federal Deposit Insurance Corporation. Section 8.1 Bank Secrecy Act, Anti-Money Laundering, and Office of Foreign Assets Control The underwriter needs to confirm the money in your account is legitimately yours and not an undisclosed loan.
Which Deposits Get Flagged
Not every deposit needs an explanation. The threshold depends on your loan program.
For a conventional loan backed by Fannie Mae, a single deposit that exceeds 50% of your total monthly qualifying income counts as large.2Fannie Mae. Depository Accounts On a $6,000 monthly income, a $3,001 deposit trips the wire. Freddie Mac uses a similar 50% threshold.3Freddie Mac. Guide Section 5501.1
FHA loans are far stricter. Any single deposit above 1% of the property’s adjusted value has to be sourced, regardless of your income.4U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 On a $300,000 home, that means anything above $3,000. FHA borrowers get sourcing requests more often for this reason.
Only the unsourced portion of a deposit counts toward the threshold. If $2,500 of a $3,000 deposit is a documented tax refund, only the remaining $500 is measured against the trigger.2Fannie Mae. Depository Accounts Regular payroll deposits that match your pay stubs don’t need extra paperwork.
Lenders review your two most recent months of bank statements when you’re buying, and typically one month when you’re refinancing.5Fannie Mae. Verification of Deposits and Assets Anything within that window that clears the threshold gets flagged. Money that has been in your account longer than the review period is generally considered seasoned and won’t need sourcing.
What to Put in the Letter of Explanation
The letter, sometimes called an LOX, is short. Its job is to connect a line on your bank statement to a real source, in a way the underwriter can verify against your attachments.
A workable letter includes:
- Your full name, current address, and loan application number.
- The date the deposit appeared on the statement, the exact dollar amount, and which account received it.
- One or two sentences naming the source. For example: “This $5,200 deposit on March 12 represents the proceeds from selling my 2019 Honda Civic to a private buyer.”
- A reference to the supporting documents you’re attaching.
Keep it factual and brief. The underwriter is checking that the letter, the statement, and the supporting documents all tell the same story. Any mismatch in dates or amounts produces a follow-up condition, which adds days to closing. Sign and date the letter, and have any co-borrowers sign it too.
Proof to Attach, by Type of Deposit
Which documents you attach depends on where the money actually came from.
Gift From Family
A gift needs a signed gift letter stating the dollar amount, the donor’s name and relationship to you, and that no repayment is expected.6Fannie Mae. Personal Gifts You also have to prove the donor had the money and moved it to you. Acceptable proof includes a copy of the donor’s check with your deposit slip, evidence of an electronic transfer from the donor’s account, or the donor’s withdrawal slip paired with your deposit receipt.
Fannie Mae accepts gifts from relatives by blood, marriage, adoption, or legal guardianship, along with domestic partners, fiancés, and people with a long-standing family-like relationship. A gift from a friend without that kind of connection may not qualify.
Sale of a Vehicle or Other Personal Property
Proceeds from selling a car, jewelry, or collectibles work as long as the buyer isn’t also involved in your home purchase or mortgage.7Fannie Mae. Sale of Personal Assets Provide a bill of sale or a written statement from the buyer confirming the transfer, plus proof you received the money: a deposit slip, a copy of the buyer’s canceled check, or a bank statement showing the deposit.
If the sale proceeds exceed 50% of your monthly qualifying income, the lender also has to verify the item’s value independently. For a car, that usually means a recognized pricing guide. The lender counts whichever is lower, the independent valuation or the actual sale price.
Retirement Account Withdrawal
Attach the distribution statement from your plan administrator or investment firm. It should show the gross amount, any taxes or penalties withheld, and the net amount you received. The net amount has to match the deposit on your bank statement.
Cryptocurrency
Funds from selling cryptocurrency are eligible, but only after the virtual currency has been converted to U.S. dollars and deposited into a U.S.-regulated financial institution.8Fannie Mae. Virtual Currency Document the trail from your virtual currency account through the exchange into dollars. Virtual currency can’t be used directly for your earnest money deposit.
Business Account Transfer
Self-employed borrowers can move money from a business account for the down payment, but you have to be listed as an owner of that account.2Fannie Mae. Depository Accounts Expect the underwriter to look at whether pulling those funds affects the business income you’re using to qualify.
Physical Cash Deposits
Cash bills you brought in from home are the hardest deposit to explain, because cash leaves no inherent paper trail. For conventional loans, Fannie Mae doesn’t accept cash-on-hand as a valid source for your down payment or closing costs.9Fannie Mae. Anticipated Savings and Cash-on-Hand A narrow exception exists for HomeReady mortgages, which are designed for lower-income borrowers and may allow it under specific conditions.
If you keep savings in cash, the practical move is to deposit them well before you start the mortgage process. Most lenders treat funds as seasoned after they’ve sat in the account for at least 60 days. If your cash deposits fall outside the statement review window by the time you apply, they generally won’t need separate sourcing.
If You Can’t Document a Deposit
An unsourced deposit doesn’t automatically kill your loan, but the lender can’t count that money toward your available assets. The underwriter subtracts the unsourced amount from your verified assets and uses the reduced figure to decide the loan.2Fannie Mae. Depository Accounts If what remains still covers your down payment, closing costs, and any required reserves, you can keep moving.
If the deduction drops your verified assets below what the loan requires, the result is either a denial or a request that you bring in additional documented funds before the lender proceeds.
Don’t Call a Loan a Gift
Describing money as a gift when it’s actually a personal loan you plan to repay is mortgage fraud, not a paperwork shortcut. Knowingly making a false statement on a mortgage application or to a federally related lending institution carries a penalty of up to 30 years in prison under federal law.10GovInfo. 18 USC 1014 – Loan and Credit Applications Generally The same rule applies to a fabricated bill of sale or any other invented source. If someone is lending you money, the lender needs to know, because the repayment obligation affects whether you qualify.
The Single Best Thing to Do Before You Apply
Stop making unusual deposits. During the 60 days before your application, avoid moving money between accounts, depositing cash, or receiving large transfers you can’t easily document. Then go through your recent statements and pull together paperwork for anything that isn’t a regular paycheck: tax refunds, insurance payouts, transfers between your own accounts, peer-to-peer payments, and any deposit that crosses the threshold for your loan type. Having the documents ready before the underwriter asks is the shortest path to closing on time.