An inheritance is an acceptable source of funds for a down payment and you do not need to wait after you receive the money before you apply for a mortgage. The only reason to wait is if you have a low credit score and you want to use part of the inheritance proceeds to pay off your debts and improve your score. Paying off credit card and other debt accounts and seeing a boost in your credit score can take several months so that would be the only reason to delay getting pre-approved for a loan. If you credit score is already fair-to-good but you still want to reduce your debt load then your best approach is to move forward with the mortgage after you receive the money and pay off any debts you want.
Please be advised that lenders require a lot of documentation and like a paper trail so I recommend that you retain copies of any documents related to the inheritance disbursement including any copies of the will, trust and other legal documents or letters addressed to you. This is very important if you are using part of the inheritance money for your down payment as lenders want to verify the source of funds, especially if your prior bank account balance was relatively small. Lenders want to make sure that the funds you use for your down payment come from a legitimate source and are not a loan that you need to repay. We explain the down payment required for a mortgage on FREEandCLEAR.
If you decide to use the inheritance money to pay down or pay off any loans such as credit cards or student loans, you should also retain hard copies of your loan and debt statements that show a reduced or zero balance after they have been paid down or off. Additionally, you should keep proof of any payments you make such as a receipt or online statement to verify the loan payments you make. This documentation is important because it may take one-to-two months for the revised account balances to appear on your credit report.
Lenders require two months of bank statements when you apply for a mortgage but as long as the inheritance funds are reflected on your most recent account statement, and you can provide supporting documentation for the inheritance, you should be good to go when you apply for a mortgage.
The documentation requirements for a down payment vary by lender and are particularly strict if you are using an inheritance or gift for your down payment. We recommend that you contact multiple lenders to understand their down payment documentation guidelines so that you can be prepared to move quickly to apply for the mortgage after you receive the inheritance funds. You can contact the lenders below to learn more about the requirements.