Use of Business Funds for Down Payment and Reserves



Use of Business Accounts for Down Payment and Reserves

When can a self employed borrower use funds in their business account for their down payment, closing costs, prepaids and reserves?  It depends on the type of loan and how the borrower’s business is structured.  

Conventional Loans

The borrower must be the sole proprietor of 100% owner of the business or provide verification from the other owners that the borrower has access to the funds.  The underwriter must perform a cash flow analysis on the personal and/or business tax returns to determine that the withdrawal of the funds will not adversely impact the business. A CPA or accountant letter is no longer required. Business funds from a business other than a sole proprietor  (schedule C) are not an eligible source of funds for cash reserves. If the business is structured as anything other than a schedule C the funds can be used for down payment only. 

FHA and VA Loans

Borrower must be 100% owner of the business.  The CPA or company’s accountant must comment in writing on the impact the withdrawal of the funds will have on the business. The letter must be signed and dated by the accountant so an email will not suffice.  If the accountant states that there will be a negative  impact the use of the funds will not be permitted.  The accountant may not be related to the borrower or be an interested party to the transaction.  Large deposits that are not in line with business revenue income stream must be explained and verified. 

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