And now homebuyer's ... It's Time to Play the Home Version of ... DEAL, NO DEAL! ... (AKA)... Cash to Close!

And now homebuyer's ... It's Time to Play the Home Version of ... DEAL, NO DEAL! ... (AKA)... Cash to Close!

So..... you now find yourself wanting to purchase a home but are having difficulty putting together the necessary financial resources to make your purchase happen....or as we call it in the business....Cash to Close!  You may be thinking that the only way that you are going to come up with the necessary funds for a home purchase is to be selected for a popular TV game show such as "Deal, No Deal" or maybe playing the lottery.  IMO you are going to have a better chance at finding your cash by strolling out into your own back yard and turning over a few rocks! Momentarily we shall peek into your attaché/game case and seek a discovery of funds that may be right under your nose!

Cash to close to mortgage lenders means adequate funds for any down payment, settlement costs and any required cash reserves. Furthermore, that your funds are verifiable, from an acceptable source and quite often adequately seasoned funds (funds that have been available to you for a specified period of time, generally 60 days).   Cash reserve requirements will vary depending on the mortgage program and other financial considerations unique to your circumstances.  These are funds left remaining in your depository accounts after closing that will help you to minimize any future downturns or financial hardships that may occur.

As you start down your path to homeownership and discuss your pre-qualifications with your loan officer, he or she should lead you into a discussion of your assets and guide you toward a discovery of the possibilities/resources that can make your dream come true. However, I believe in "homework" (see My Four Rules) in that you need to educate yourself by researching information and resources with due diligence to arrive at a truly informed decision.  This will save you a lot of time, maybe disappointment or embarrassment...and maybe grief and money down the road.

So without further adieu...Let's play my Special Edition of the Homebuyer's version of......... DEAL---NO DEAL!  In the TV version you get to choose an attaché case for your very own from one of 25 beautiful women. One you can hold onto through the very end....if you so choose.  As you progress through the game play the odds of the value of the content of your case can increase or decrease based on your luck....but these odds, as in a Las Vegas Casino, will always favor the house. My apologies as I know that I can't compete with the sparkling personality of Howie Mandel or match the beauty of stage assistants. J

However, in my home version of DEAL-NO DEAL....  I am going to give you a big edge from the start. I am going to provide you with a specially selected case and let you peek into your case and the individual sacks before you start your game play. Of course the game play in this version is your path to homeownership. In this case there are 11 labeled sacks of cash, all with varying amounts of money in them. Some sacks may contain little or nothing while others may really surprise you as to their content and value.  So now it's time to open your case... and peek into each named/labeled sack to see what's there!  Good luck!

Seasoned Depository Funds: These are funds that you currently have on deposit in checking savings, money market accounts, CD's, etc. Generally they must be seasoned by 60 days prior to your loan application.

401K Funds: These funds are the vested value of your retirement account(s).  When lenders list this asset on your application it is generally reflected at 70% of its vested value.

 

Cash On Hand: To lenders this is commonly referred to as "mattress money." If permissible/allowable in the mortgage product this will be scrutinized (subjective evaluation) very closely by the Underwriter. Generally it will require a plausible or believable explanation which may include, the amount, source of these funds, why these funds are under the mattress as opposed to not being in a bank account, the evaluation of your employment, income,   disposable cash flow and debt service, etc.

Tax Refund: After all, this is your money and it is considered seasoned as the U.S. Treasury has been holding it for you over the past year.

 

Earned Income: Some mortgage programs will allow you to use earned income that you set aside between the application date and closing date. You must be able to document your capacity to set aside these funds and still meet all your financial obligations in a timely manner during the time frame.

Gift Funds: Most mortgage programs will allow you receive gift funds from family or another party who can show a close family relationship that can be used for any down payment and/or settlement costs. The donor must be able to demonstrate the ability to make the gift and transfer of funds is properly documented. Funds from a Not-for Profit Organization is also allowable.

Asset Conversion/Sale of Asset:  Asset conversion is taking a tangible asset that you can document ownership and market value and converting it into cash. This can be a secured personal loan (mentioned below) or the sale of the asset up to a documented value. Any personal loan taken out and secured by the asset cannot be done if the resulting payment schedule would create a significant hardship on you or disqualify your debt ratios on your mortgage loan.

Seller Concessions:  Most mortgage programs will allow the seller to pay in your behalf some or all of your settlement costs. This must be specified in the purchase contract as a maximum dollar amount or a maximum percentage of the contract sales price. The maximum allowable seller concessions will vary by mortgage program and in some cases your qualifying loan-to value (LTV) ratio or subject to your minimum cash investment requirements.  FHA and USDA Rural Housing programs are most flexible in allowing up to 6% seller concessions.  VA is 4%.  NOTE:  In a "buyers market" sellers will tend to demonstrate more flexibility in their decision to assist a prospective buyer with their closing costs. A good real estate professional with negotiating skills can be instrumental in maximizing this opportunity for you.

Down Payment Assistance Program (DPA):  Down payment assistance may be allowable. This assistance may be available to you through a State, City or County Housing program. At the State level this is generally referred to as a Mortgage Revenue Bond (MRB) program. At the City and County level it is generally referred to as the State Housing Initiatives Partnership (SHIP) program. Generally your lender must have an established partnership/relationship with that housing agency to participate in their programs.

Secured/Unsecured Personal Loans (be careful): Some mortgage programs may allow for you to obtain a personal loan for part of your required funds to close up to the extent that such loan does not disqualify your maximum debt ratios for your mortgage loan. An unsecured loan is rarely accepted, nonetheless a possibility.

Lender Paid Closing Costs:  This is an option that a lender may make available to you.  Basically the lender must price/lock your loan at a higher interest rate to obtain a greater financial yield/differential over the term of the loan or in any subsequent sale of your mortgage loan into the secondary market. The lender then issues you a credit in the amount of this differential to your closing costs at the closing table. In effect or reality you are actually repaying these lender paid costs over the term of your mortgage loan. Whether or not this option is used is depends on what your lender can do and your personal determination if the means justifies the end.

Ok...you have now peeked into your sacks of cash or financial resources and got idea of what was under your nose. Can you stand patt? Can you state "No Deal" for the rest  of  the game play and head off to your closing with your own resources?

It is very important for you to understand how and when you can use these resources, mix and match as is necessary, and that they will be permissible within the guidelines for the type of mortgage you will be getting. Whether your loan is Conventional, FHA, VA, or USDA Rural Housing the criteria will vary somewhat.  It is very important that your loan officer knows this criterion and guides you accordingly.

Visit me at www.ronwithers.com and/or myfloridamortgagepro.

Copyright 2009, Ron Withers, All Rights Reserved