Mattress Money

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

I wrote a blog a couple of days ago titled Compensating Factors Required To Qualify For A Mortgage.  Ginny Gorman commented in the blog about one of the Compensating Factors, "Mattress Money", which made me realize that I needed to explain why "Mattress Money" is a problem in meeting Underwriting Guidelines, but can be used when it comes to Compensating Factors.

First of all let me define what the term "Mattress Money" is.  "Mattress Money" can actually be money that is stuffed in a mattress, but more often than not it is money that is being held by the Borrower in cash, and can not be documented where it came from.  Therefore, "Mattress Money" cannot be used towards downpayment or closing costs, since Underwriting Guidelines clearly state that all funds have to be documented.

There are a variety of reasons why someone would have large sums of money in their house or a safety deposit box.  For example I did a loan for a friend of mine that had taken all of his money out of the bank when Clinton became President  He was convinced that Clinton was going to bankrupt this county, and he did not want to have his assets frozen when it happened.  Other's might not be as eccentric as my friend, but may have large sums of cash for reasons that are not completely legal, and that is the main one of the main reasons why "Mattress Money" cannot be used.

In order to be able to use "Mattress Money" in qualifying for a Mortgage the money needs to be deposited in a bank account for anywhere between 30 to 90 days depending on the type of Mortgage Program that the Borrower is applying for, in order to properly document it.  If the "Mattress Money" is not made know until the Borrower is under contract, then there is not enough time for it to be deposited for the necessary time (Seasoned), so it cannot be used.

So why is that not an issue in using "Mattress Money" as a Compensating Factor?  The reason is that in the case of a Compensating Factor the money is not actually being used to qualify for the Mortgage, it is basically a security blanket.  However, some form of documentation to prove that the money really exists needs to be provided, and a picture of a large pile of money stuffed in a mattress is not good enough, the money needs to be deposited.  By depositing the "Mattress Money" it can then be proven that it actually exists, and even though it has not been Seasoned, it can be used to show that the Borrower has a large amount of funds in reserves, which then gives strength to the loan.

I don't want anyone to think that it can be taken for granted that just because a Borrower has a lot of "Mattress Money" that the Underwriter will be willing to use it as a Compensating Factor.  There is no guideline that requires an Underwriter to do that, the guidelines just simply provide the Underwriter with the latitude to do so

This is why at my earliest contact with a Borrower I start to discuss with the funds that will be required for downpayment and closing costs, and where is it coming from.  Those the Borrowere already have it in the bank?  If not when, where, and how are they getting it?  And begin to identify if we are going to have a problem or not.  Because if we know that we need to have money Seasoned, then we need to start doing that right away.  Better to Season the money, then to try to use it as a Compensating Factor.  Compensating Factors should be used as a last resort, and should not be depended on.

This all means that a Loan Officer has to anticipate problems before they happen.  That means taking the time at first contact with the Borrower to ask all the necessary questions and take a full Application.  Most problems can be identified if the Loan Officer does his/her job right from the very beginning.  In this business you can not take short cuts, because if you do, problems are going to occur, and transactions are going to blow up.


 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or


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Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

Great explanation, George.  I can imagine people trying to do all sorts of stuff w/ this.  Ironically, the simpler way might be to give the cash to a relative and have them give you a tax free gift.  

Nov 09, 2012 07:18 PM #1
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

When they say cash is king, they certainly weren't talking about someone using it to get a mortgage. I discuss cash, during every preapproval conversation.

Great job with the post.

Nov 09, 2012 08:09 PM #2
Joni Bailey
Berkshire Hathaway Home Services - Anderson Properties - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

Suggested and a great follow up to the previous blog. One of the things I admire most about my favorite lender is what you mentioned... She anticipates problems BEFORE they happen! I love that about her!

Nov 09, 2012 08:54 PM #3
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Great share George & thanks for the mention!  I do have people talk to me all the time about their 'mattress money' and they are more afraid the IRS will find out about it in making that investment purpose since everything over $10k needs to be reported by a bank to the Treasury....

Nov 09, 2012 09:16 PM #4
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Debbie, yes and that is done, but it is done at a risk. If the Borrower, or the donor of the gift money is audited by the IRS one or both of them may still end up in a bind trying to explain where the cash came from.  The high the gift the amount the higher the possibility of the happening. Also we are talking about the money being used as a Compensating Factor to make the loan look stronger, so they only need to prove that it really exists, so no need to take that chance.  If the cash was needed for downpayment and/or closing cost then the Borrower and the donor have a tough decision to make, and the LO needs to be very careful because they could find themselves in hot water as well.  Since 911 The government has gotten extra tough with the documentation of funds, so they need to be ready with a good explanation.

Joe, the ones that start to scare me is when I ask where is the coming from for the downpayment and closing costs, and the answer is "don't worry I have it" I begin to worry ......... LOL

Joni, thank you for the suggestion, hopefully it get the little gold star, but more important is what you said, you work with someone who anticipates the problems.  That is one of the major things that separates a good LO from others.

Ginny you are welcome, and YES they should be concerned with large deposits, that is why the Lending Industry is concerned with them as well.  You don't want to them to come after you for tax evasion, or charged with money laundrying, and these days you never know who is looking into your records.

Nov 09, 2012 10:25 PM #5
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, guess that would include the cans of dollars buried in my back yard?     It is funny many of our clients have money somewhere they have, but don't want the IRS to know.

Nov 10, 2012 01:30 AM #6
Al & Peggy Cunningham, Brokers
RE/MAX West Realty Inc., Brokerage - Brampton, ON
Our Family Wants To Help Your Family!

Excellent information and advice as always George.  At first I thought, yes Debbie Gartner has the solution until we read your caution.

Nov 10, 2012 03:05 AM #7
Debbie Walsh
Shahar Management - Middletown, NY
Hudson Valley NY Real Estate 845.283-3036

So complicated to explain cash - I see this problem quite a bit in the last few years with people not wanting to leave their money with the banks.

Nov 10, 2012 04:27 AM #8
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joan, I actually knew someone that did that.  He looked like he belonged in a Homeless Shelter, but had more money than he knew what to do with.

Al and Peggy what Debbie suggested is done fairly often, and most of the time the money can be explained if it is asked about later, but it does present an additional risk if the Underwriter questions it, or if the amount of cash is so large that it can cause the IRS to question it.

Debbie, they must be like my friend that I mentioned in the blog.

Nov 10, 2012 04:53 AM #9
Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

George your friend was so wrong about Clinton:)  You are so thorough in your consultation with potential buyer.  A buyer might have the money for the transaction but it is also very important to identify where it is coming from.  Yes source of fund cannot be ignored.

Nov 11, 2012 03:20 PM #10
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