The Smooth Loan Process #2010-04

Why Do You Care Where the Money Comes From? One of the biggest challenges in getting your final approval for your home loan can be documenting the source of your funds for your down payment. This can be a area of frustration for the buyer and Loan Officer alike. If you have purchased a home before, your Loan Officer may have asked you about every little piddly deposit in your checking account. Why do we do this? I think my daughter, Claire puts it best when she yells at one her brothers for getting them in trouble. "You ruined it for all of us! Thanks a lot!" The source of the down payment is a very good indication as to whether or not the buyer will actually live in the property that is being purchased. Owner occupied properties get better terms on the loan than non-owner occupied properties or investment properties. The terms are better for owner occupied because statistics show that those loans are less likely to go to foreclosure. So the people that "ruined it for all of us" are the people that intended to purchase a rental property but want the better interest rate and lower down payment so they use someone else to take the financing for the property. That other person (or straw buyer) gets the down payment money from the investor to close and never moves into the house. Later, if the investor cannot make the payments, the house goes to foreclosure. No problem for the investor because the loan is not on his credit but the bank is stuck with a foreclosed property. For the record, I'm against this. So we have to ask you for not just the balances in your bank account, but the full transaction history of your bank accounts for the past 60 days. If there are unusual or large deposits into the account, we have to document where it came from. Of course, payroll and tax refunds are always okay. But let's say your parents are helping you with your down payment. We'll not only have to document that they gave you the money, but also that they had the money to give you. That means looking at the parent's bank statement to see if they had any large deposits and if they did, document the source of their deposit. Actually, it's not as bad as it sounds. As long as you are not a straw buyer, you will not have any problems with documenting the source of your down payment. There are a few sources of down payment that will make your home loan very challenging. The shoe box of cash in the closet is a problem. There's no way to properly document cash like that. Taking a picture of it for the underwriter does not work (I've tried). If you're thinking of buying a house and you have cash for your down payment, get that money in the bank. After it's been in the bank for 60 days, no questions asked. Taking cash off of a credit card is no good either. That's an unsecured loan and is not acceptable for down payment. Other types of loans are just fine though. A loan against your 401k, car or home equity is perfectly fine. Of course, we'll have to document that too. The Smooth Loan Process lesson for today: Be prepared to document the source of your down payment. Harold Perkins The Mortgage Advantage 480-831-1588 Harold@HaroldPerkins.com