The short answer is that mortgage lenders must be able to verify where funds used in a transaction came from.

If you’ve been saving cash at home, lenders generally have no way to document its source. Even if the money was earned legally and saved over many years, current lending regulations require lenders to verify that funds used for a down payment, closing costs, or reserves come from an acceptable and documented source.

Money that has been deposited into a bank account and reflected on bank statements is much easier to document because there is a paper trail showing the funds are yours and available for the transaction.

Large cash deposits made shortly before applying for a mortgage can also create challenges because underwriters may need documentation showing where the money came from.

This doesn’t mean cash can never be used. Every situation is different. The key is whether the funds can be properly documented under the guidelines of the loan program being used.

If you have significant cash savings and plan to purchase a home in the future, it’s often best to discuss your situation with a loan officer as early as possible so a strategy can be developed before you begin the mortgage process.