Financed home buyers should plan ahead for this

[usctrojancpa]

I wanted to let all the buyers out there know something that both my buyers and I had been some speedbump that came out of the blue in terms of getting our loans approved.  As most of you know, lenders require a minimum of your last two bank statements to verify your funds for the downpayment and future reserves as well as to source any larger deposits.  Apparently many lenders are beginning to drop the dollar amount of deposits that they need sourced (i.e. shown back up for).  It used to be that any deposits over $1,000 in the past 2 months would need to be sourced (excluding payroll deposits), but recently that number as dropped down to $500 and I heard that it may go down further to $200-$250.  What does that mean?  Well, it becomes a real pain in the booty for buyers who have even regular minor deposits going through their account statements.  Also, if you plan on getting a gift from someone in your family for part of the downpayment be prepared to show the lender a gift letter along with a bank statement from the person who gifted you the money.  I've told my future buyers to open another bank account and have their small deposits go through that account and not provide those bank statements to the lender.  Let your main account just have your payroll deposits as the only deposits.  Funds that have been sitting in your account for over 60-90 days are seasoned and the lender can only ask you to verify whatever bank statements you provide them.  This premeptive move with save a lot of grief and hassle for buyers.

 

[homer_simpson]

Come on Martin, this is Irvine.  We buy everything with CASH.  :-\

 

[usctrojancpa]

Come on Martin, this is Irvine.  We buy everything with CASH.  :-\

I guess I need to get more cash buyers.  Besides, I love using my rewards cards to get cash back and miles.....CHARGE IT!  haha  That being said, for the 60% of Irvine buyers who use financing for their purchases a this heads up may save them some late minute need to scramble to meet the final conditions for loan approval. 

 

[homer_simpson]

Didn't know the Banks were getting that nit picky now... well I guess it's a good thing.

I like your recommendation about opening up another account to house your small deposits as it's what my wife and I did to have our money seasoned to show the lenders.

 

[usctrojancpa]

Didn't know the Banks were getting that nit picky now... well I guess it's a good thing.

I like your recommendation about opening up another account to house your small deposits as it's what my wife and I did to have our money seasoned to show the lenders.

Yeah, if you want these low rates you better be ready to be probed.  I lost count on how many letters of explanations I had to write for my lender's file.  I'm just glad I didn't play poker every weekend where there would be large withdrawls followed by large deposits.  Not sure how the lender would have reacted to me saying that the deposits were withdrawn funds for poker games and/or winnings. 

 

[icey]

This is a good tip for buyers. I just went through this. My financial situation is really simple compared with most people, and I have credit scores in all 800s, good work history and steady income, was underborrowing, and well capitalized.

But there were still requirements for a tremendous amount of paperwork to prove where cash was coming from, where I literally had to send them copies of personal checks from other people. I found this to be intrusive because now I was sending other peoples' personal info around.

I also didn't like sending so much of my financial information, because with how easy it is to hack people nowadays, they can now get all your financial records if one of the parties involved in the chain of documentation gets their email account hacked.

This is a good thing in the long run because it preserves the integrity of the lending process (no liar loans by a mile), but on the other hand it was a bit frustrating and also it raises the risk of compromising someone's financial information because these documents are being blasted all over the place.

 

[rkp]

i dont get this.  if you are planning on putting a large amount down, say $200K-$400K for those irvine SFRs that are financed, what do a few, or even 10-20 <$250 deposits matter to a lender? 

 

[usctrojancpa]

i dont get this.  if you are planning on putting a large amount down, say $200K-$400K for those irvine SFRs that are financed, what do a few, or even 10-20 <$250 deposits matter to a lender? 

I think the lender worried those deposits may represent borrowed money which may not be reported on your credit report (in calculating your DTI).  Both my buyers and I had more than enough liquid funds to cover the downpayment but the lenders were insistent on getting the sourcing of the larger deposits.

 

[sgip]

The movement of funds from point A to point B is the single largest issue lenders have to deal with. Keeping a clear paper trail is mission critical. When in doubt, over document.

We often run into "Well, these are funds I gave to my brother a while ago..."  in cases like this we need to see the outflow from your account to your brother, then a check from the brother to you. This level of documentation is pretty rare to get when family funds are being re-tracked.

It's possible to "push back" against the documenting of funds, only if you have an offsetting amount. An example would be if you need $100k to close, and have $70k in an ING account, plus another $40k at Chase ($110k total). If you have a $5,000 mystery deposit at Chase, or some other account they want to source, have the lender disregard the funds since you've already got $110k total, but in this scenario $105k "use-able". That's more than enough to cover the $100k needed to close.

Here's an "off topic" thing to also start watching out for:

Mid 2011 the State of California required all properties being transferred or rented to have Carbon Monoxide detectors along with your standard smoke/fire detectors. Most lenders didn't require the CM detectors to be noted by appraisers. Now we have to. If your in escrow, ask your inspector to look for the CM detectors and note if they are installed or not.

My .02c

Soylent Green Is People

 

[rkp]

SGIP - how long is "a while ago"?  As USC notes, 60-90 days would make them seasoned.  Does that mean that if I have some large deposits from 6 months ago in an account, the lender won't care about them?

I have nothing to hide in terms of where dollars in my accounts come from but I also dont care to share or go through all the effort of documenting.  I give personal loans to friends all the time, plan our group trips and pay for them and then take money later, and silly stuff that has lots of dollars coming and going.  None of it is significant for downpayment funds but would like to know what a lender will ask for.

With us hoping to be in a house by end of year, should I lock down our larger accounts so that they have no more deposits or withdrawals until it comes time for a loan? 

 

[usctrojancpa]

SGIP - how long is "a while ago"?  As USC notes, 60-90 days would make them seasoned.  Does that mean that if I have some large deposits from 6 months ago in an account, the lender won't care about them?

I have nothing to hide in terms of where dollars in my accounts come from but I also dont care to share or go through all the effort of documenting.  I give personal loans to friends all the time, plan our group trips and pay for them and then take money later, and silly stuff that has lots of dollars coming and going.  None of it is significant for downpayment funds but would like to know what a lender will ask for.

With us hoping to be in a house by end of year, should I lock down our larger accounts so that they have no more deposits or withdrawals until it comes time for a loan? 

Lenders will want your last two monthly bank statements so that might cover 60-90 days from today.  The beginning balance at the start of the first bank statement is considered to be "seasoned" funds.  The lender will ask you to document all non-payroll related deposits over $500 on those two bank statements that you provide them.  Remember, the lender only sees what you provide them.  Most of my buyers have one or a few accounts where they have their downpayment funds are coming from and have opened another side account (which they won't provide statements to the bank) where they'll have their non-payroll/work deposits go into.  I think the lender would want to see the account/s where your payroll/work deposits go into though and you not providing those may raise a red flag.  A little forward planning can cut down on future possible headaches. 

 

[sgip]

6 months is usually far back enough to not be an issue. Sometimes we'll need bank statements for 60 days, but later need to verify a chain of payments for some reason. In those cases, we often get 6 to 12 months of bank statements and the question will come up where this $100k deposit came from. It's a rare occasion, but since I've mentioned it already, I'm sure you might be the one person out of 100 who has it happen.

One point about funds to close (on my mind since we just had a file run into this....) Let's say the cash to close we need is $75,000. You've got $50k in your ING account, and $100k in your Chase account. Don't wire your funds from the ING account. The escrow company will have an ING deposit receipt for $75,000 but at the point of approval we're only aware of $50k being in the account. Now you've got to trace the funds transfer, show the W/D from Chase, the wire to ING, the balance prior to wiring and the wire data. Yes, it's that complex, required because we're now living in a fully documented world, and funds transfers are heavily scrutinized.

My .02c

Soylent Green Is People.

 

[CTNative]

I remember when working with SGIP, one of my questions was a couple hundred dollars in coin I had to deposit so I emailed him about it. He had already advised me from the start that anything going into my account was subject to heavy documentation review, but I thought, "Surely not a few hundred in rolled coins?"

He advised me not to deposit it, for just the reason on this thread. I am glad I did not, because it is quite obvious they would have scrutinized it.

In my mind, I never wanted them to have any reason to look any closer at me than they needed to. Not that they would find anything, but I was always concerned maybe something I didn't even know about was something that was "bad" for the process. I also wanted to make sure I had enough cash left in the account, without needing to make a deposit from my reserves that would then be scrutinized, in case my closing costs went over (I had heard this was common).

I went to the extreme on my accounts and I put them on lockdown. We never touched the debit card for anything. We fell back on our rainy day fund for all necessary cash purchases, unnecessary spending was stopped, anything else went on the credit card. Basically, the only activity my checking account had for a month were payroll deposits and the occasional on-line bill payment that I couldn't defer.

As it turned out SGIP was spot on for the closing amounts so I had no overrun costs, and I freed up the account from my lockdown after we closed escrow.

I was amazed at how much, and how often, documentation was required. I think I provided information on most of my accounts about three times, once for the pre-approval letter, once about mid-way through the process, and once right before closing. Each time I am sure all my account activity was being monitored for any of these kinds of "mystery deposits."

Considering the amount of documentation required, and how little was required during the bubble, I think quite a number of people will fail to finish escrow. In fact, I wonder what the drop out rate is due to the loan falling through.

 

[davenlei]

As it turned out SGIP was spot on for the closing amounts so I had no overrun costs,

That was my experience too.  He was the closest in closing amount than any other person I worked with in the past.  Very easy transaction with no negative surprises.