The Biggest Mistake Consumers Make When Taking Out a Home Loan


The Biggest Mistake Consumers Make When Taking Out a Home

 

Loan.

 

Bank Statements Don’t Reveal the Whole Picture

Bank statements show the funds in your account, but whether these funds are legitimate is another question indeed. And cash deposits that are inconsistent with your banking history will be under the lender’s magnifying glass. In fact, cash deposits cause more problems and scrutiny for consumers trying to secure mortgages credit today than any other credit item.  So let’s take a look at the typical scenarios homebuyers need to be ready for when documenting their cash in the bank.

If any deposit is more than 25% of your monthly income…

Then monies will have to be sourced with a clear letter of explanation, or a potential gift letter if the money came in the form of a gift, along with a statement from the person gifting that money showing they had the ability to do so.

If any deposits are less than 25% of your monthly income…

Then these funds can be used in the loan transaction, although the consumer may be asked to explain where the funds originated. However, no paper trailing will be required.

If cash is from a side job or any other exterior source other than your occupation…

Then — if it is needed for the mortgage transaction — that money will have to be “seasoned” for a period of 60 days, meaning those funds are ineligible for use toward the mortgage until two statement cycles have passed.  Then those funds will be eligible.

If a deposit is a gift…

Then the person giving the gift needs to show on paper a clear ability for them to gift money to the recipient. In other words, a friend of the person giving the gift can’t make a deposit in the giftor’s account without getting a clear and concise explanation including a gift letter and subsequent paper trail with bank statements showing where the funds originated and where the funds ended up.

If additional reserves are needed, e.g. two months’ worth of mortgage payments liquid in the bank (which is typically what’s needed)…

Then consumer must meet the 60-day seasoning requirement, unless the funds are from paychecks in the normal course of pay periods.

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