Why does an underwriter want proof of where my downpayment or other monies come from?

One of the biggest criteria an underwriter uses to approve your loan is your ability to repay that loan. They will always check the amount of monthly debt obligations you have (your monthly bill payments that show on your credit report) and compare that with your gross monthly income. Depending on the loan you have applied for the percent of your income allowed to pay your mortgage, taxes, insurance and PMI (if it applies to you) along with your regular monthly debts is your debt ratio. There are actually 2 different debt ratios they use but that is for a different blog entry.

Every underwriter is concerned that you are borrowing the money used for your down payment, closing costs or other debt payoffs. If you are borrowing that money they must add this new debt to your monthly bills and see if you still fall within their debt ratio guidelines. If the money is truly a gift than they are usually fine with it as long as the person giving the gift write a gift letter saying you do not have to pay the money back and they provide bank statements or other proof that the gift giver is not themselves borrowing the money for you.