Weekly Mortgage Memo: Funds for Closing

May 22, 2015

Funds for Closing

As a part of every loan we have to verify the borrower has the funds for closing. Very often the borrower’s plans and the lenders requirements don’t match. The sooner buyers know the lender requirements the better. It could save some processing headaches or a denied loan. Here then are some things to keep in mind when consulting your buyers.

Lenders now ask for 60 days or two bank statements. Any non-payroll deposits will need to be documented. It is amazing how many people wait until the last minute to deposit cash, gift $, etc.
Government loans allow the down payment to be a gift from a family member, employer or the government like DPA programs.
Conventional Same as Government. Borrower can receive a gift from a family member with zero minimum requirement.
Business assets can be a challenge. Most underwriters ask for a CPA letter that says a withdrawal from the business account won’t harm the business. CPA’s stopped giving those and now it’s a struggle.
Stocks and bonds. We have to paper trail the conversion/sale to a cash account including copies of the bonds.
Borrowers can borrow from an asset for the funds for closing. If the loan isn’t on the credit report we would have to add the payment into their ratios:

o Auto

o Motorcycle

o Land / Home

o Cattle J (it is Oklahoma after all!)

o 401k / IRA (Traditional IRA lets you take a distribution for a first time home buyer without penalty. Taxes, of course, would

apply)

Borrowers can sell an asset. This is tough to paper trail. We have to determine the value of the asset and document the sale.
Unacceptable sources of funds for down payment include cash, unsecured loans (no asset involved – ie Credit Card).
Lease to purchase equity. Also difficult to document. Money paid to the owner/lessor that is in excess of the market rent can then be counted as funds into a mortgage transaction and used for down payment. An appraisal to determine the market rent would have to be ordered.

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