Applying and closing on a mortgage can be a simple process if you are prepared for it, if you are not prepared it can be a significant amount of paperwork and questions.
One way to cut down on these seemingly endless questions about your personal finances is to be aware of the deposits entering your bank accounts.
An underwriter will generally question deposits that meet or exceed 50% of your gross monthly income, or if there is an unusual deposit that doesn’t “fit” into your normal pay scale. To avoid this you can follow these few rules:
Season your money:
What does “seasoned money” mean? It is a term used for money that has been in your bank account for 60 days , or two whole bank statements. If you have deposited a large amount of cash into your savings account, it will show up on your next bank statement.
But if you have two full bank statements that do not show this cash deposit, it’s considered “seasoned money” and the underwriter will not ask about it. So if you are planning on buying a home this upcoming year and you have a stash of cash, make sure you put it in sooner than later so you don’t get questioned about it. Because Cash is untraceable, therefore it is unusable.
Be prepared to source your deposits:
Quite a few people get gifts from relatives, or withdraw from their 401(K) for the downpayment. This is completely acceptable, but again if the underwriter witnesses a large deposit, they will require you to source it.
Gifts can be sourced with transaction histories, gift letters and bank statements. 401(K) deposits will be sourced with quarterly statements, transaction histories and a withdrawal request from your financing company. So be prepared if you are considering using any of these sources, again it’s totally acceptable, but will require some additional documentation.
Don’t sell assets like cars and motorcycles to get cash
First off, this is an acceptable form of money, but it becomes incredibly tedious to properly source it.
If you sell a car to get the money you need for a down payment, the underwriter will require numerous things to verify the money came from said car sale. Typically it will be things like this:
- Picture of the automobile
- Bill of Sale
- Appraisal / Bluebook value of automobile to justify value
- Letter of Explanation about the sale and how you came across the money
- Copy of the check used to buy the automobile
As you can see, it can get pretty hairy if you are selling unsecured assets.
You can take out a collateral loan:
Another common way some people have received a down payment is taking out a collateral loan on a secured asset they own. Something like a car / truck, Home equity line of credit, a boat, or other asset.
They will need to source this as well with all the loan documentation and a transaction history showing the money entering your account. They will be concerned about the new payment required to satisfy the new loan, and it will be counted against your debt to income ratio.
There are loans that require NO down payment:
As mentioned in previous blogs, there are loans that require no down payment, but they are subject to different guidelines. For example if you are to do a WHEDA loan, you are held to stricter income standards, you cannot make too much money, or too little.
If you are to pursue a VA loan, you will have to be a veteran.
If you want to pursue a USDA loan, you will be purchasing a house in a more rural community, and you are subject to income guidelines.
The best way to identify your best course of action is to meet with a qualified loan officer prior to buying a home, explain your situation and come up with a plan. If you execute the plan well, you can ensure a smooth, easy close. It’s always recommended you take your loan officers advice when they suggest how to go about things. A good loan officer will go over multiple options that can best be suited to you and your family.
If you want to figure out a plan for yourself, and buy a home in the future.
http://executivemortgagellck.clixonit.com/ <– Click here
Executive Mortgage LLC
909 E. Walnut Street, Green Bay WI 54301