@Brent Coombs and others....I was one of the people suggesting that LOC proceeds be taken out and banked, at interest, long enough for it to not appear on the last two statements.
Your individual experience may vary, but in a conversation with my mortgage broker last week, he - and his underwriting expert, in separate conversations - cleared up the process:
They (again, YMMV) don't care if the down payment comes from the LOC. They would prefer to see it transferred out of the LOC early enough for the payment to show up on the credit report, to make for easier underwriting funds tracing, but showing/proving the transfer, the new balance, the interest rate, and the monthly balance will suffice.
The new monthly payment on the LOC will be added to the DTI calculation, so you need to have some overhead clearance there. Normal cash reserve requirements, etc, still apply.
I can't stress enough that you need to talk with your own lenders, but generally if one lender can do it there is at least one other lender out there that can also do it this way.
Bottom line (tl;dr):
a) my mortgage broker doesn't care if the down payment comes from a LOC
b) I don't have to hold tens of thousands of dollars at interest for 2+ months in anticipation of using that as a purchase money down payment.
Once more, your mileage may vary.....
