Do you keep cash in a safe or other hidden place inside your home? If so, this is a big heads-up! You need to get that money into a bank account immediately and then wait for three months before you can use that money for a down payment.
“Everyone takes cash” — right? NO.
A mortgage lender needs to see two months’ bank statements showing the money in your account belonging to you. If there is a large deposit into your account, that deposit needs to be traced with paperwork. That is why you will need that third month for the money to season in your account: so the deposit doesn’t show on your bank statements.
Down payment money must be sourced. If you cannot document it with paper, you cannot use it. A signed letter does not count. Why? Because anybody can say anything in a letter–writing it down doesn’t necessarily make it true. A photograph of money hiding under your mattress doesn’t count, either. Why? Because you could have taken a cash advance on your credit card and then stashed the money under your bed. Or in your home safe. That would be borrowed money from a credit card company, which is not allowed.
You must officially document your down payment money.
If you sold a vehicle, you can use that money for your down payment as long as you provide the Bill of Sale, the receipt showing the cash being deposited into your account, and a bank statement showing the cash in there. But beware! The dollar amount of the Bill of Sale and the deposit slip must match exactly, so you cannot keep out some money for shopping.
If you want to use your tax return for the down payment, you must provide a copy of your tax returns showing the refund owed and then the deposit receipt for the exact same amount and a bank statement showing the money in.
If you want to use gift money from your mother, you must provide your mother’s bank statement showing she owned the gift money as well as have her sign a form gift letter from your mortgage lender. Why? Because your mother cannot take out a cash advance on her card for your down payment. She must show “ability to give” with a bank statement.
You get the idea. The documentation needs to come from a legal source and cannot be something someone wrote up and had a friend notarize the signature on; nor can it be a sneaky side loan.
With more Americans nowadays saving money in a personal safe (or, horrors!, even a plastic garbage bag) this is important information to know. Get your “house money” into the bank and keep it there (preferably in one account) until it is time to get that cashier’s check at closing.
If you know someone who this applies to, please pass on the information, because it is no fun to be blindsided with a rule you never knew about.
If you plan to buy a house or refinance in the foreseeable future, this is important information. To avoid stress, grief, more paperwork, and a possible loan delay — or even a denial — don’t make these common mistakes.
Three Mistakes Home Buyers Make (Also applies to people refinancing)
- Don’t move money around!
This is not the time to transfer funds from one account to another. Keep your money where it is until after your loan closes. If you get angry at your bank and want nothing more than to say, “I’m outta here!” I don’t blame you a bit for feeling that way. But please, keep your patience and save that action for later. If you close one account and open another, you are in for a hassle in the underwriting department. Yes, you can still get your loan, but why set yourself up for more paperwork and letters of explanation? If a family member is giving you a gift toward the down payment, the same advice applies. Have them keep the funds in their own account until you receive instructions from your loan officer. Most lenders will ask the family member to wire funds directly to the closing agent at the time of signing.
- Don’t open new credit! Don’t buy a car!
No exceptions. Do not purchase new appliances or new furniture until after closing. Do not open a new credit card to get the instant discount. And whatever you do, don’t you dare buy a new automobile, truck, or SUV. Taking on any new debt could cause your loan approval to turn into a denial — even if you have signed the loan note and closing disclosures. Until your loan is officially funded and closed, the lender can still deny your loan.
- Don’t close out your good credit!
This is not the time to decide you have too much open credit and start shutting down your credit cards. Doing so could lower your credit score for two reasons. First, you can lose the positive points that the on-time credit card was awarding you. Second, you will be changing your percentage of total credit usage-to-available credit, and this has the potential of lowering your score. Even though the lender has already pulled your credit report and approved it, most lenders will do another soft pull right before closing. You don’t need to risk lowering your score and therefore risk your interest rate or approval.
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