Hi All,

Is it required for the bank to put the Earnest money on the HUD statement if the Purchase agreement states there is Earnest Money? I am being told that the bank is only required to put the earnest money on the HUD if the bank can verify the source of funds and not put the earnest money on the HUD if the bank is unable to verify funds, is this correct?

I couldn't find anything that says you "have" to verify the source of funds for earnest money. The HUD instructions just say that Line 201 is for any amount paid against the sales price prior to settlement. Not saying that it isn't a good idea. It also could be something that is required by your bank's policies and procedures.

I was able to find the following:

Does HUD require verification of earnest money?
If the amount of the earnest money deposit exceeds 2 percent of the sales price or appears excessive based on the borrower's history of accumulating savings, the lender must verify with documentation the deposit amount and the source of funds. Satisfactory documentation includes
• A copy of the borrower's cancelled check, or
• A certification from the deposit-holder acknowledging receipt of funds and separate evidence of the source of funds is also acceptable, or
• Evidence of source of funds including a verification of deposit or bank statement showing that at the time the deposit was made the average balance was sufficient to cover the amount of the earnest money deposit.

If I am reading this correctly it appears that I am required to verify funds if earnest money is over 2% of sales price or appears excessive. Right now if the bank cannot verify the funds we do not put it on the HUD. Is the bank required to put earnest money on the HUD if it can or cannot verify the source of funds?

I could be wrong but I don't think that is for all loans. The section of the HUD Handbook that this was taken from is titled "Mortgage Credit Analysis for Mortgage Insurance on One-to-Four Mortgage Loans" (4155.1 Chapter 5).

Maybe someone else can opine if it is acceptable to leave it off it you don't verify earnest money.

Don't look for guidance on gardening in a how-to book on building bridges.

How you complete a HUD-1 has nothing to do with the instructions you found because they deal with a completely different topic (Yes, HUD -- the Department -- does touch a lot of different things.)

The earnest money goes on the HUD-1 based on what's recited in the Purchase and Sale agreement unless you aware of contrary information on its amount.

Thanks John, Where can I find that information that speaks to that? I have mortgage underwriters that will not add the earnest money to the HUD-1, unless it is verified funds.

Thank you for your help.

What does an underwriter have to so with a HUD-1 anyway? The closing agent is responsible for the HUD-1 and not underwriting. What do they think line 201 is for?

It may seem convoluted but Underwriters basically want all the borrowers' money verified. Giving credit for earnest money affects ratios. Around here, we normally get a copy of the cancelled check to verify earnest money was paid and we put it on the HUD.

Underwriting is part of the loan approval process. It has nothing to do with the numbers at the closing. Verification of the earnest money may be a prudent part of underwriting, but how would the P&S agreement be signed by the seller if the seller had not received the deposit (earnest money) cited in the P&S?

Or do you not get a copy of the signed P&S Agreement?

We do get a copy of the signed P&S agreement and it does state the earnest money. So unless there is something strange with the earnest money it should be stated on the HUD? I have talked to a lot of bankers and experts and I am get about a 50/50 split on what other banks are doing. Half are including the earnest money on the HUD no matter what and half are only including it if the money is verified.