Orange County Calif 1st Time Homebuyers are finding that the number of available homes for 
sale has shrunk to the point where making an offer and getting it accepted is a competition. As in any competition, the strongest competitor will almost always win. In the case of purchasing a home, you become a strong contender by making sure that your financing is in place before you make that offer.
The process of securing financing is not as simple as filling out an application and 5 minutes later receiving an answer. There are significant steps involved in becoming mortgage ready and this is part three:
Check Your Assets!
On August 12 I wrote this article describing how we evaluate sourced vs unsourced funds.
When we refer to Assets during the loan process, we are referring to Liquid Assets, or the cash you have available to use as a down payment, cover closing costs and maintain a cash reserve.
When we evaluate your available cash, we request your most recent two months of bank statements and look for a number of different factors:
Deposits: we normally require 2 months bank statements to get started. Your bank statements will be reviewed for deposits that don’t clearly show where they originated. Deposits will be categorized as “sourced” and “un-sourced.”
Sourced deposits means that your bank statement clearly indicates where the deposit came from. The best example of a sourced deposit is a direct deposit payroll payment.
Unsourced deposits means that when looking at a bank statement, there is an ATM deposit for Cash, a deposit of a check from someone or perhaps multiple checks from a self-employed person.
Since my “Did You Rob A Bank…” article pretty thoroughly describes the process of sourcing funds, I’ll refer you to that for more information. One final piece of advice about avoiding the process of having to source funds: open a savings account specifically to accumulate money for your home purchase 60-90 days (or longer) before beginning the pre-approval process.
Do not make any unsourced deposits into this account – this means do not transfer money into this account from an existing account that contains unsourced deposits – when we do our review, if there are transfers into the account, we will ask for copies of the bank statements the transfer originated from. If there are unsourced deposits on that statement, we will be required to perform the funds sourcing process.
I am not saying that the funds sourcing process is bad – it is just tedious if there are many unsourced deposits to be documented and this is the way to make the evaluation of your cash assets more efficient.
Different Loan Programs Require Different Reserve Balances
As part of the overall asset review, your loan officer will calculate your down payment and closing costs then survey the available loan programs for your unique financial profile. If after contributing your down payment and closing costs, you have no cash remaining in the bank then you will narrow your available loan choices.
In general, if you have no cash reserves left after down payment and closing costs, you will most likely be qualified for an FHA insured mortgage since the guidelines are so much more flexible. However, in exchange for more lenient underwriting guidelines, you pay a price…1.75% of the loan balance as an up front mortgage insurance premium and 1.25% of the loan balance as an annual mortgage insurance premium.
If you have 3 months reserves (defined as Principal/Interest/Taxes/Insurance) in your bank account after down payment and closing costs, along with a strong FICO score, you will be able to qualify for a conventional loan with private mortgage insurance. Private mortgage insurance does not require an up front premium and the annual premium is significantly cheaper then the FHA mortgage insurance.
As you can see, the criteria for qualifying for a mortgage is complex, so it is important that you contact a loan professional to obtain a pre-approval before you make that all-important offer on your dream home.
For more information and a no-pressure conversation about your ability to qualify for a loan, give me a call at (714) 403-2603 or send an email message to Linda@LindaOnLending.com.
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