Cash on hand is an acceptable source of down payment in most cases for both conventional and FHA insured mortgages. Actually verifying that the cash is yours and wasn’t given to you by someone else is the challenge often faced by home buyers in similar situations.
Here’s what you do. First, discuss this with your loan officer; he or she should be able to walk you through the proper steps for verifying this money. At a minimum you will need to write a letter of explanation describing the source of the cash and some description of your common personal practice of having cash on hand. If the source is personal savings, then you will need to address the length of time it took in order to save that amount. The underwriter will be looking at your income to determine how reasonable it could be for you to save that amount over that time period.
The final challenge to documenting the cash as a source of down payment has to do with establishing your overall financial pattern. The underwriter will be looking at how many bank accounts you have as well as your utilization of financial institutions in general. Underwriters are provided guidance suggesting that individuals who have a high utilization of financial institutions do not generally have cash as a significant source of savings.
The most important thing for you to consider is that the amount of cash you intend to use for down payment makes sense in the context of your overall financial situation, and that the underwriter can justify that it is indeed your cash based upon the file’s documentation and your explanation.