August 9th, 2016 3:53 PM by Dana Bain
Are Eligible For Use In A Mortgage Loan
mortgage lender, we see it all the time, cash funds being used in consideration
on a purchase mortgage or on a home refinance. People earning non-reported
money doing cash side jobs otherwise known as money “under the table.” These
funds are ineligible as consideration for procuring a home loan.
reason is simple, all mortgage lenders today selling loans that Fannie Mae and
Freddie Mac have a fiduciary responsibility to the investors in the secondary
market to create and originate mortgage loans with
the highest degree of minimal credit risk.
Beyond that, the government
regulations imposed on mortgage lenders’ today require them to adhere to strict
anti-money laundering policies, as such, all funds in accordance for reserves
or cash to close must be documented and sourced.
a paper trail anyway?
mortgage lending purposes, a paper trail clearly shows a beginning point and an
end point, it documents how the money moves from point A to point Z.
example let’s say mom and dad are giving you a gift of $10,000 to purchase a
home. The $10,000 in order to create a sufficient paper trail would look
something like this: money originates in mom and dad’s bank account,
money is transferred from mom and dad’s bank account to your bank account and
from your bank account the money is then wired into escrow. Sounds simple
enough right? Well it is and it isn’t. The following is typically what’s needed
to document a paper trail for the purposes of securing a home loan:
full original bank account statement to show
where the money begins
executed gift letter shows
who is giving the money and states the relationship between the parties
bank print out showing
the “available” deposit of the gift funds into your bank account
other very common examples of paper trailing include:
Sourcing of down payment funds in buying a home: how to do
this-provide the mortgage lender a copy of the earnest money check, both front
and back that you made to the title company when you made an offer to purchase
the home along with the bank statement showing those funds leaving your account
from whichever account they came from.
Cash deposits going into a bank account:this will definitely be
questioned and scrutinized during the mortgage loan process. If you’re using
cash deposits on the bank statement you will need to explain to the mortgage
lender where these cash deposits are coming from and if these funds cannot be
sourced, the lender will subtract these funds from your reserves or cash
to close and will disallow the use of these monies.
So how do
you know what funds need to be paper trailed or not?
the time the following funds do not have to be sourced:
Assets in any form of a bank account that is solely your funds
where the funds have been for the last 60 days
Assets you have in your bank account the coming in the form of
your income, such as from your paycheck
document odd ball funds…
personal property such as a car, boat, motorcycle etc.-can be documented with a
bill of sale executed by both parties clearly showing the purchase price and
all the components of the transaction along with the money going into your bank
account with a copy of the bank statement showing those funds as “available”.
Cash must be in your bank account for a period of 60 days in order for these
funds to be considered seasoned, generally no paper trail will be required
deposits by paying someone else’s debt such as an auto loan can be sourced so
long as the person making the monthly payment consistently pays the monthly
debt obligation in one form, meaning every month the debt obligation is paid by
cash alone or by a payment directly to the creditor. This gets challenging to
be able to accurately document when the obligation is paid erratically in a
combination of cash and credit.
funds deposited into a bank account will cause the the mortgage lender to
require a letter from a tax professional stating the borrower’s business will
not be negatively impacted by the co-mingling or use of business funds in
consideration for securing a mortgage, along with the bank statements and
general paper trail.
for mortgage loan financing today, leaves no stone unturned, as long as they’re
turned over the right way by making sure all monies are documented your be well
on your way to successfully securing that home loan.
are trying to secure mortgage loan financing and have a question about whether
not the money you have is eligible for use, feel free to send us an e-mail Dana@BainMortgage.com .
It’s a much easier conversation to handle the paper trailing upfront, than it
is to be dealing with it after the fact. Start by Understanding A Paper Trail:
What Funds Are Eligible For Use In A Mortgage Loan