Why is Underwriter asking for source of funds?  The Underwriter asks for source of funds to verify that there are no additional undocumented debts incurred by the borrower to obtain the required cash needed for down payment and closing costs.  All sources of funds have to be properly documented and verified. 

If there is a significant increase in an account, or the account was recently opened, the borrower will need to provide information on where those funds came from along with a written letter of explanation.  If the funds are not in a verifyable account, then the borrower will need to provide a written letter of explanation along with evidence of the ability to accumulate the cash.  Everything has to make sense for it to be acceptable. 

Each loan type (conventional, FHA , USDA & VA) will have its own underwriting criteria and a minimum required cash investment by the borrower. The borrower must be prepared to produce the last 60 days of all bank statements that will be used for the down payment and closing costs.  He should pay careful attention to checking statements because the underwriter will review each item and a pattern of  the borrower's spending habits will emerge.  If there are any NSF (non sufficient fund) charges, then the underwriter may require an explanation. If there are too many NSF then it may raise a "red flag" for the underwriter. 

If the funds are in a 401k, the underwriter will use an average of 60% of the value of the  assets.  Monthly or quarterly statements will be required for verification. 
If the source of the funds are a gift, then a Gift letter will be required from the donor.  The Gift letter must specify that no repayment is required by the donor from the borrower.  Proof of the donor's financial ability to make the gift may also be required. 

It is crutial that you are completely upfront with your loan officer at the time of the initial application regarding the source of your funds.   By being straightforward in the beginning, the loan officer can put together a correct plan of action for your individual situation and objectives.