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Mortgage Loan Process - Cash & Assets
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As we were saying...
- With regard to your cash in the bank, lenders like to see money in the bank. The more the better, but not an absolute necessity in certain circumstances. Money in the bank is having money in a checking account, a savings account, a retirement account or other "liquid" asset account. Savings bonds are another source of funds that can be used to purchase a home. If you have them, consult with your mortgage loan officer before you cash them.
This is an important part of your qualifying process. To start with, mortgage lenders do not like "matress money". Matress money is money not in the bank that you might be "saving for a rainy day." Why the mortgage lender doesn't like this money is that you can't prove that it is yours. It could be that someone just gave you the money as a loan that you have to pay back. If it is a loan this could impact your debt ratio and your ability to pay your mortgage payment. Mortgage lenders like to typically see a 60 day record of your bank accounts. During these 60 days the mortgage lender is looking for abnormalities in your statement - large deposits and NSF's. Large deposits could be a loan from someone, or a cash advance on a credit card that has not shown up on your credit report. The mortgage underwriter at the lender who has to approve your income and assets documents is also looking to see if you handle your money responsibly. For example, are you bouncing checks and paying your rent on time etc. One thing that suggests that you are not handling your money is "NSF" showing up on your statement and it stands for: "Non Sufficient Funds". In case you didn't know, an NSF shows up when you write a bad check.
So if you have matress money, put in the bank now if you are thinking about buying a home. And do not let us see those "NSF's on your bank statements.
If you have retirement accounts we look at these in several ways. The first consideration is whether you need to cash them in to purchase the home or not. If you don't need to cash them in, then we multiply your cash equivalent balance by 70% and use this as your available amount liquid just in case we needed it for the purchasee transaction. Typically, these statements are issued quarterly. If so, then we'll want to collect your last quarters statement. If they do come monthly, we'll most likely need your last two months statements. Incidently, we'll typically need your last two months of bank statements too.
If we do have to cash in your retirement account to purchase your home, then we'll need to collect the paperwork stating the conditions to withdraw the money in the account. You have the right to use these funds for purchasing a home, but this comes possibly with taxes, penalties and most likely a pay back provision. If there is a payback provision, this payment will be calculated into your debt ratio. Again, a typical guideline is 70% of the cash value of the account is what we can calculate as being available for the transaction.
Another form of assets that can be used can come from Gift Funds. Gift funds are just that, they are a gift from a relative, a parent, sibling, and uncle, etc. In technical terms, we call the person who gives the funds to you the "donor". Gift funds generally can not come from friends. These funds must be "given" to you by a relative. If you re going to use gift funds for your down payment and closing costs then we suggest two things. Get the gift funds two months ahead of when you need them and put them in the bank. If the donor wants to give you the funds right at the time of your loan settlement then there is particular procedure that we must follow to get them into your hands so don't just take them and put them in your bank account. Check with your mortgage home loan broker loan officer to see how these funds must be handled. If you don't handle them the "right" way, your closing could be delayed and in some extreme cases, could prevent you from buying the house with that mortgage lender. If this happens then you would have to start all over with another lender.
Back To: Loan Process
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