Bad, Bad, Cash; we just don't like it

Mortgage and Lending with Christensen Financial Mortgage 385907

So what's so bad about cash?

Mortgage lenders just don't like it, and they'll prove it to you.


let me be a little clearer here. You can make your payments in cash (sometimes), but it won't help you acquire a mortgage, rather it may help you get turned down.

  I teach a segment in a Homebuyers Education Class and last Saturday we had a nice (sarcasm) discussion about cash and its role in the mortgage process. You should have seen the snarl on one of the student's face, who realized she was being hit both coming and going.


If you are being paid cash it is not an acceptable source of income, period.

Income must be consistent, and verifiable, and cash doesn't cut it. I'm going to stay away from the right or wrong aspect, but if it doesn't show up on a W2, 1099, and/or tax return

it doesn't count

we no longer have "stated" income programs, so you're just out of luck.

that's just the way it is

So if you want to qualify for a mortgage you will need acceptable, verifiable income, and

CASH doesn't cut it...not acceptable

Source of Funds to Close:

Ever heard of the term "mattress money?"

Well if you put mattress money together with source of funds to close you have a problem, possibly a turn down.

Yes, we are back to acceptable/verifiable sources of funds to close and

Cash doesn't's not acceptable and/or verifiable

and if you've made a cash deposit of any significance into one of your bank accounts, you have a problem.

lenders are being very picky about verifying the source of large/inconsistent deposits (or any deposits) into your accounts. In the old days they used to just back the money out. That could cause problems, if you now had insufficient funds to close. Today, many investors have overlays where they disallow the total account.

that can be a killer

back to my student, who by now is shaking her head and saying, "that's not fair!"

Maybe it is...maybe it isn't...but it is what it is, and in the mortgage process it's hard to deny that

Cash is BAD! 



Comments (66)

Wayne Jackson
Lakeshore Realty 208-714-4109 - Hayden, ID
North Idaho Realtor, Serving Coeur dnullAlene and Hayden Lake

Jay, Great subject. I must disagree with Evelyn #30. You cannot use cash for a "cash sale". The escrow companies will not accept cash. You must put the cash in the bank and then transfer it to escrow. When putting $10,000 or more in the bank you must fill out a federal form so you can get a visit from the IRS.

Jul 26, 2012 01:11 AM
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

Has been for many years only I guess people just don't know.  The warning phrase is 'I get paid under the table ...'  In other words, your income doesn't exist.

Jul 26, 2012 01:16 AM
Jim Miner
Miner Noh & Associates - Phoenix, AZ
Loan Modfication & Short Sale Specialist

If the lender accepts the cash "story" there is a risk associated with that line of thinking.

If the lender does not accept the cash "story then they are portrayed as evil because they want verification.

One can sure understand how a "sense of humor" can get well tested.

Have a good day.


Jul 26, 2012 01:38 AM
Justin Peck
Miller Real Estate - Hastings, MI

This post reminds me of what is important.

Now with the Author living / working out of Cape Coral, maybe there is not as much of this. If ever someone has a down payment or cash to work with, more than likely they are obtaining some sort of conventional financing. (Most of the time!) If thats they case we always recommend that this particular buyer works with a "Local" bank / lender. They are more forgiving of circumstances that are explained above.

The biggest benefits are that the lender may actually know you by name, they know where you work, they can see the income, they can make exceptions for "other" income, the buyer can actually walk into the Brick and Morter building and make their payment, and they can usually get questions answered in a much easier fasion. (ALL OF THIS BEING DONE AT THE SAME PLACE THEY WENT IN FOR PRE-APPROVAL)

I do have to agree though, that they still cringe at magical large deposits before purchase......but when the buyer can actually go sit down FACE TO FACE with their lender and explain the circumstances surrounding that, more likely than not they will consider.

Working with Brokers / Large / Regional Banks can be a hassle, with so so many hands involved in the transaction. Broker - 'Hey I need you to get a letter from your Credit Card Company showing you paid off the card." Broker's Company - "We did not recieve any letter, can you send to me direct?" Brokers Investor - "Hey we are going to require a letter from your Credit Card Company that has todays date on it." RD Underwriter - "I see no letter from Credit Card Company, can you send to me direct, o and by the way, a letter explaining where the cash came from to pay it off please." (Example of RD loan with one of these above types of lenders.)

-This example above happens all to many times, in many different circumstances. Where is your back office system? Can you not see the email I sent the letter in? Does the lender not input that letter into some database?

- To many times, the actual issue can be easily resolved about cash letters, explanation, some other outside proof of the money coming in. The problem is these extraordinary conditions / documents go through too many hands and get lost in the shuffle, and to be honest, many lenders hate the extra effort. Without that local lender to go and talk too, we have to then depend on the lenders good email skills / back office skills / record management skills.

Jul 26, 2012 01:55 AM
Carolyn Roland-Historic Homes For Sale In Delaware and S. Chester County PA
Patterson-Schwartz Real Estate - Wilmington, DE
Carolyn Roland, GRI, CRS

When I grew up in Chicago, there was always the joke about the $10,000 fire in the Eastern European immigrant's home.  His mattress burned. Guess that wouldn't work for a homebuyer nowadays. But these people were known for paying cash for everything. Very few credit cards around. I remember that the only card my mom had was for Marshall Fields. The times they are a changing!

Jul 26, 2012 02:19 AM
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Jay, we agree.  We get buyers all the time that think they are golden but can't get qualified because of "no credit", not bad credit.

Jul 26, 2012 04:21 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!


seasoned and sourced, and cash on hand isn't a good source.


good point. maybe they shouldn't call it a cash sale, maybe a "wired" sale


buying back mortgages is no fun. lenders do not want to take the risk. ultimately the investors, who buy these loans decide the rules.


that's funny, but true. we just don't like cash any more.


We just got our alternative credit source back, but they are few and far between. I haven't finished digesting the data yet, but within the next couple of days you'll see a post about the new FICO credit score and what it entails.

thanks all


Jul 26, 2012 04:36 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!

Now Justin,

if you're talking about a bank doing portfolio loans, than maybe they'll cut a buyer some slack, but they'll pay for it in the rate.

As for everybody else. If you're selling a loan into the secondary market you must adhere to those guidelines regardless of the type of institution. If not you may be repurchasing the loan.

if you're happy with the instituion you're dealing with, that's great, stay with them, but there's no one up there in Michigan with a magic wand, and cash is still a problem.

thanks for your thoughts


Jul 26, 2012 04:43 AM
Sylvia Jonathan
Coldwell Banker Platinum Properties - Irvine, CA
Broker Associate, SFR

Having dealt withclients who have mattress money, I would perhaps clarify: Cash is not bad. UNREPORTED cash is bad. If you get paid cash from a business or even employment, as long as you deposit this cash in a bank account and declare it on your tax return, you will not have a problem.

The people who cannot prove income and thus not obtain a home loan are the ones who get cash "under the table". Cash is not bad, it's what people do with it that is not so good.

Jul 26, 2012 06:58 AM
Ann Wilkins
Golden Gate Sotheby's International Realty - Oakland, CA
Oakland, Berkeley, Piedmont CA

I always discuss the loan process with my first time buyers.  I warn them that the banks/governement thinks they are either drug lords or terrorist and that all cash deposits must be accounted for.  They laugh but it comes in handy when they most explain every deposit in their accounts. 



Jul 26, 2012 07:23 AM
Sharon Sanchez
Ace Home Realty - Carson, CA
Your Number "1" Source For Real Estate.

Hi Jay.  A buyers inability to use cash for theirdown payment, closing cost and/or reserves and a lenders asking, "Where did this large deposit come from?, isn't new".  Lenders have been doing this for years.  When there's a tight money market they want more documentation and when there's a loose money market they want less documentation.  When they loosen their underwriting guidelines, they usually come up with programs like stated income, no reserves, mattress money OK, etc.  So don't be surprised.  In today's market, lenders are making buyers jump through more hoops to get financing.  We just have to help them navigate through this process.

Jul 26, 2012 08:20 AM
Short Sales, Foreclosure & Bank Owned Real Estate

Hi Jay, thank you for your excellent post, Great information!!

Jul 26, 2012 09:25 AM
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

I once had a client who sold a motor home for down payment funds. She not only had to produce the bill of sale, but the buyer had to give her a copy of the new registration in their name.

Meanwhile, I have a son who occasionally cashes his paycheck and puts the money in his safe. You never know when you might want to buy something, right? He feels good knowing he has a chunk of cash on hand, but as you said...

Meanwhile, I spent some time a couple of years ago writing for a company that teaches about Anti-Money Laundering, so did a lot of reading about the subject. The banks' aversion to cash is (supposedly) all about countering terrorism and money laundering.

Jul 26, 2012 04:03 PM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I had a guy with the same problem who only wanted to pay cash for a property; but he did not want to put it in the bank as he did not want the IRS to get wind of all this money coming in.  His problem not mine.  I do not money launder.  I refused his request to ask the seller to take 20K in cash off the books and the rest verifiable funds.

Jul 27, 2012 08:43 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!


sorry, but i must disagree. If you're depositing cash, you've got issues and they can/will become a problem. Some you may be able to solve, but most you won't.


the underwriters are also looking for borrowed funds that are not disclosed.


I've been a lender for over 30 years, and except fo that 5 year plus period, where all you needed to acquire a loan was a pulse, the guidleines today are not dissimilar to more traditional guidelines. will loosey, goosey return? maybe...maybe not.


you're welcome


she should have also had to produce an appraisal of the home to establish that she received fair market value, not in excess of fair market value.

your son may keep all the cash he wants unless he wants to buy a home in which case I suggest it gets at least 90 days seasonoing, at least.

it's about sourcing the funds, and establishing the source to be a legitimate source for mortgage purposes.


I'm not passing judgement, well maybe a little, but he's cheating the gov. In the old days one of the 3 C's of lending was charactor. not are you one, but do you have any. If that what he does to the gov shouldn't I be concerned he might do the same to me, that being solely whatever's in his best interest.

i believe you made a good choice.

thanks all



Jul 27, 2012 11:20 PM
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Jay, I have had this conversation about "seasoned funds" as well...I tell buyers If you have cash it better have been in an account for three statements (or more) if you want to show it as a source of down payment.

Jul 28, 2012 04:04 AM
Jon Quist
Tucson's BUYERS ONLY Realtor since 1996

Cash IS NOT king, especially when it comes to loan processing. They'll make a borrower document everything. They are now paranoid, and look for any excuse to NOT lend money. I suspect they are paid to sit on their funds.

Jul 28, 2012 04:55 PM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!


you just don't know how much that helps, because if they get to the lender and they've made these recent cash deposits they probably have a problem.


Documenting everything is certainly what is doone, but that is also very traditional, except for a short period of time when a pulse was enough.

can I get some of that money to just sit on the money.



Jul 28, 2012 10:48 PM
Nan Jester
Exit Real Estate Gallery Jacksonville Beach, FL - Jacksonville Beach, FL
Realtor, Exit Real Estate Gallery

Just had a deal fall through because the buyer really doesn't use his bank account, keeping money at his house. Who does that these days? 

Aug 02, 2012 06:20 AM
Jay Beckingham
Christensen Financial Mortgage - Port St Lucie, FL
Seniors ROCK!


Apparently more often than we realized, and when we try to source it it comes from nontraditional sources. work payed for in cash, which isn't allowed.



Aug 02, 2012 09:29 PM