In preparation to buy a home...

[El_flasko]

Here are a few things to NOT do if possible. Of course none of this is hard and fast as life happens, but good general guidelines to keep in mind. Have a read

https://www.southerntrust.com/blog/do-not-do-it

 

[traveller]

I am 5/7 out of the mistakes offered Not all of them during the same mortgage application but over the years I did give the various loan processors a run for their money.

 

[Melnic]

good advice. What is the trigger point for "large deposits" that they question?
My wife pays herself monthly or sometimes every other month (draw from her business) so in my recent mortgage it got REALLY annoying as they kept asking for bank statements and copies of checks proving where the funds came from.

I keep track of my assets / financials and update quarterly (Salary, mortgage amount, market value, 401K, roths, 529 etc). Having that and turning over to loan person made the pre-approval go really fast.

 

[traveller]

With that list in mind, if you know you are going to apply, just keep records of all the sticking points. For example, it's not a problem to have big deposits, its a problem not to have a legit source for those deposits. What the mortgage company doesn't want is that you borrow your downpayment in cash from some russian guy down at the docks. If you can show that you deposit a members-draw checks from your company every x months, its just part of your income.

 

[El_flasko]

With that list in mind, if you know you are going to apply, just keep records of all the sticking points. For example, it's not a problem to have big deposits, its a problem not to have a legit source for those deposits. What the mortgage company doesn't want is that you borrow your downpayment in cash from some russian guy down at the docks. If you can show that you deposit a members-draw checks from your company every x months, its just part of your income.

BINGO

 

[Minuteman]

Here are a few things to NOT do if possible. Of course none of this is hard and fast as life happens, but good general guidelines to keep in mind. Have a read

https://www.southerntrust.com/blog/do-not-do-it

All good advice (as usual), thx!

I have a few stories of me doing some of these things and having to explain. Last example was a significant deposit of money during the loan process; had to explain it was from a friend repaying me a personal loan. This seemed like a foreign concept to the loan officer, they eventually wanted written statements from me and my friend. I guess people so rarely do this it might seem suspicious. Looking back now, I'm guessing the idea of helping a friend in need and them paying me back was outside their life experience and/or risk tolerance.

 

[traveller]

All good advice (as usual), thx!

I have a few stories of me doing some of these things and having to explain. Last example was a significant deposit of money during the loan process; had to explain it was from a friend repaying me a personal loan. This seemed like a foreign concept to the loan officer, they eventually wanted written statements from me and my friend. I guess people so rarely do this it might seem suspicious. Looking back now, I'm guessing the idea of helping a friend in need and them paying me back was outside their life experience and/or risk tolerance.

Just before a re-fi a couple of years ago, a family member re-paid me a personal loan in cash (I had helped him to get a business started). I knew it would get the mortgage company bent out of shape if it showed up in my bank account otoh it was an amount I didn't want to keep around the house. In the end I kept it stashed in a bank safe deposit box until the closing was done.

 

[El_flasko]

Just before a re-fi a couple of years ago, a family member re-paid me a personal loan in cash (I had helped him to get a business started). I knew it would get the mortgage company bent out of shape if it showed up in my bank account otoh it was an amount I didn't want to keep around the house. In the end I kept it stashed in a bank safe deposit box until the closing was done.

It doesn't necessarily mean bad news if you show the cash deposit it's more that the lender can't use it towards the asset/reserves total in the transaction. Essentially it would just be ignored in your totals as insanely stupid as that sounds. Cash is King with banks and the court jester with lenders so to speak. I always tell my clients, as long as we can legitimately document where it was, where it went, and how it got there, then we are typically ok. Cash makes that difficult.

An underwriter can typically only ask for the last two months of bank statements during the loan process, so I tell clients if you're holding cash and know you're going to buy in the next 3-6 months, deposit the cash NOW and let it sit. If we can't see the deposit on the last two months than it can't hurt you


EDIT- in short, if you know you're going to buy in the near future talk to your lender sooner than later and lay out things related to the topics in the OP. A good lender can work around these types of situations and present alternatives if they know what's coming. It's the last minutes surprises that can throw the process into a loop.

Ryan