If a relative wired you money to pay off a personal loan, or you took cash out of an installment loan, why is your underwriter suddenly asking where a deposit came from? Because any single deposit larger than half your monthly qualifying income counts as a "large deposit," and the lender has to find out whether that money was borrowed.

That is the large deposit rule. It shows up as a condition on your approval, usually worded as a request to "source" a deposit. Answer it with the right papers and it clears quickly. Answer it with a vague note and it can sit on your file while your closing date gets closer.

How the 50% test gets triggered

The rule comes from Fannie Mae's Selling Guide, section B3-4.2-02. A large deposit is any single deposit that exceeds 50% of your total monthly qualifying income. The underwriter only runs this test when bank statements are used to verify your assets, and those statements usually cover the most recent two months. Some lenders set a tighter threshold of their own, so the number your lender uses can be lower.

Three details decide whether a deposit actually becomes a problem:

  • Only the unexplained part counts. If part of a deposit is already documented, only the rest is tested against the 50% line.
  • Obvious sources are exempt. Payroll, Social Security, tax refunds and transfers between your own verified accounts need no more paperwork, unless the lender has reason to think borrowed money is involved.
  • On a purchase, it matters if you need the money. If the funds go toward your down payment, closing costs or reserves, the lender has to document an acceptable source. If the deposit can't be sourced, that amount is subtracted from your verified funds, and the lender checks whether what remains still covers closing.

Freddie Mac narrowed its version this year. Under Bulletin 2026-9, effective July 1, 2026, a large deposit has to be sourced only if it was made no more than 60 calendar days before the application date, on or before the Note date, and appears in the file's documentation. Which agency's rules apply depends on where your lender sends the loan, so ask.

A hypothetical payoff deposit

Say your monthly qualifying income is $8,000. Your aunt sends you $6,000, and you use it to pay off a personal loan three weeks before you apply.

Monthly qualifying income$8,000
Large deposit threshold (50%)$4,000
Deposit from aunt$6,000
Amount already documented$0
Unsourced amount tested$6,000

$6,000 is over $4,000, so the deposit gets flagged. If it stays unsourced and you need those funds to close, the lender takes the $6,000 out of your verified assets.

Three files where it shows up

A relative pays off your loan through your account. The money comes in as a deposit, then goes out to the creditor. To the underwriter, a large incoming deposit is the thing that needs explaining, and Fannie Mae lists a gift letter as acceptable supporting documentation. Lenders usually want the donor's letter saying no repayment is expected, plus statements showing the donor had the money.

You took cash out of an installment loan. This is the case the rule was built for. Underwriters flag large deposits mainly to confirm the funds are not borrowed, because borrowed money you haven't disclosed changes your debt-to-income ratio (DTI), which is your monthly debts divided by your monthly income. When the deposit turns out to be loan proceeds, the lender has to count that loan and its payment when it qualifies you. If you aren't sure why that loan is on your credit at all, or what West Virginia law allows a lender to charge for it, the West Virginia installment loan rules explain it.

A VA file. The trigger works differently there. One consumer summary of the rules says VA loans call for documentation on any single deposit over 1% of the sales price, while FHA uses the same 50% income test as conventional loans. Confirm the threshold with your lender, since the summary is secondary.

Not the same as the 10-payment rule

Paying off an installment loan touches two separate rules, and borrowers often mix them up.

The large deposit rule is about assets: where the money in your account came from. The 10-payment rule in section B3-6-07 is about debts: an installment loan paid off, or paid down to 10 or fewer remaining payments, doesn't have to count in your long-term debt. Fannie Mae still tells lenders to look closely at debt paid off solely to qualify. The guide doesn't link the two rules, but if a payoff is funded by a recent large deposit, that deposit has to clear the asset test on its own terms.

The new "debts paid by others" rule, added in August 2026, is also a different thing. It lets a lender leave out a debt that someone else has been paying every month, backed by 12 months of that person's canceled checks or statements. It covers ongoing payments, not a one-time payoff.

What to hand the processor before they ask

The condition clears when the paper trail connects the deposit to its source and the payoff to the creditor. Put it together before the stip is issued:

  • The bank statement page showing the deposit

    The official PDF with every page, not a screenshot. Highlight the deposit.

  • The source of the deposit

    For a gift: a signed gift letter stating no repayment is expected, plus the donor's statement showing the transfer. For loan proceeds: a written explanation and the loan's paperwork, so the debt can be counted.

  • Proof the installment loan is paid

    A payoff letter or creditor statement showing a zero balance, or a credit supplement.

  • A short letter of explanation tying it together

    Date, amount, who sent it, and what it paid. One paragraph is enough.

If your file runs through Desktop Underwriter, follow the exact wording of its large deposit message, because meeting that message satisfies Fannie Mae's requirement. Then ask your loan officer one question: "Do you need this deposit to close?" If you have enough other verified funds, the deposit may not need sourcing. If you do need it, a missing gift letter is one of the ways a file gets denied after pre-approval instead of just held up.