Now that it’s BottleRock weekend, I hope you have the chance to get off your sofa and do a little dance. Yup, that rhymed too.
Anyhow, in the lending world there’s a different kind of sofa and it’s called a source of funds acknowledgement, or SOFA form.
Over the years, I’ve referenced in numerous columns the importance of being able to properly account for all funds being used in your home loan transaction.
This is especially true when buying a home because you have very little time these days to completely satisfy all the terms of your purchase contract.
In fact, most likely your lender has developed customized forms and technology to assist you with this task to keep you on track.
For example, while there are many types of electronic asset documentation systems being used, the SOFA is completely the opposite.
It’s typically a handwritten or typed form that’s intentionally designed to give your human loan officer the opportunity to connect a few critical pieces of your file.
It really forces your loan officer to pay careful attention when verifying the source of funds being used for your loan closing and to ensure that the paper trail of those funds is properly documented for closing as well.
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Once the form is completed by your loan officer, it is then reviewed by the processor who has been assigned your file.
At that point, the information provided on the form is cross-referenced against the asset documentation that you submitted with your application.
The main goal of the form is to document the conversation that has taken place between you and your loan officer regarding what’s expected of you to document and create a paper trail of your funds for closing.
Perhaps this sounds a bit redundant, but it’s for your protection because a lot can change with your asset accounts from the time you complete your initial pre-approval process up until the time your lender is ready to fund and close your loan.
Since the balances in your asset accounts can fluctuate during the time you are shopping for a home, it’s customary for your lender to verify that you have more funds available than what’s required for closing provided the actual accounts being used for closing match the appropriate sourcing documentation of them.
Furthermore, unlike a gift letter, it’s not required to correct the SOFA form to match exactly the funds needed as long as you have an overage, whereas a gift letter must match dollar for dollar any amount being gifted between the donor and recipient.
If there was a missing paper trail of funds or any inconsistencies listed on the SOFA form, such as transfers of funds between different accounts or the inability to satisfactorily validate certain accounts, then this could cause a delay at closing for you.
It might also lead to data integrity issues between your lender and their investors, which effectively can be problematic for them after loan closing.