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Mattress Money Is A Problem When It Comes To Mortgages

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

Anyone one who has been involved in a Real Estate related field even for a short time has most likely heard the term "Mattress Money".  "Mattress Money" is simply the colorful slang word for "Cash Funds", and "Cash Funds" is defined in the Lending Industry as funds which cannot be documented.  If funds cannot be documented, then they cannot be used in a mortgage transaction, which means Mattress Money Is A Problem When It Comes To Mortgages.

This week I had two different Borrower with funds which could not be documented, and as a result were short on funds to qualify for the mortgage.  In one case the Borrower had a fairly large amount of cash in his house, and deposited the funds shortly before finding a house to he wanted to purchase, and talking to me to be Pre-Approved.  The Borrower had more than enough funds to qualify, but without the funds being "Seasoned" (money in the Borrower's bank account long enough to not show up as a deposit) the funds cannot be used as part of the transaction.  So your question maybe why not wait until the funds are seasoned before producing a bank statement?  The answer is, the Borrower did not mention the funds were from a cash deposit before the mortgage application was put into process and reviewed by an Underwriter.

The second Borrower did not deposit cash, they made a large deposit with a bank check.  So what is the problem with that?  The problem is the source of the funds cannot be proven from a bank check, therefore, considered cash.  If you stop and think about it the bank check does not have the name of the person who purchased the check, or an account number from where the money came from.  This means the money could have come from an unacceptable gift source.  Without being able to do document the source of funds the bank check is considered cash.

In both of these situations, the Borrowers had access to acceptable gift funds.  But if they had not been able to access gift funds to replace their own undocumented funds, they would have been short of documented funds for Downpayment and Closing Costs.

The frustrating thing with both of these transactions, was that I spent a substantial amount of time explaining what not to do, and yet the light bulb did not come for them to realize what they had done and inform me of it.  Both Borrowers considered the money theirs, so therefore, they did not see the problem? 

So what should these two borrowers have done.  The one with the large cash deposit should have been Pre-Approved sooner.  If he had been Pre-Approved earlier in the process, I would have inquired about the source of funds for Downpayment and Closing Cost, and would have instructed him on what to do.

The issue with the second Borrower could have been easily avoided.  All that Borrower needed to do, was to do a bank transfer from one account to the other, OR have written a personal check from one account to the other.  Again if he had told me he was taking the money from one account to the other, we could have avoided the problem.

Borrowers have to be reminded at every turn to not do anything financially without talking to their Loan Originator, and even with all the reminding they still many times create issues.  If funds cannot be documented, they cannot be used in a mortgage transaction.  The funds are considered, cash, "Mattress Money", and Mattress Money Is A Problem When It Comes To Mortgages.

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator 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 gsouto@mccuemortgage.com

Posted by

George Souto
NMLS# 65149

C (860) 573-1308
CALL 7 Days/Wk
Fax (860) 760-6891

Email Me
About Me
My Blog

I am a Mortgage Loan Officer who can assist you with all your mortgage & refinancing needs in
CT, and RI

I can assist you with your Conventional,
FHA, CHFA, VA, USDA, & 203K loan programs.

I reside in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Haddam. E. Haddam, Higganum, Chester, Essex, Deep River.

 

Comments (53)

Kathy Streib
Cypress, TX
Home Stager/Redesign

George- aged and verified money.  Very interesting!  I was not aware of this. 

Sep 21, 2013 03:25 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Dick I can understand your feelings, and even share them to a point.  Else where in the world cash is preferred, as well as being debt free.  Not the case here in the US.

Ginger actually it is seasoned in most cases after 60 days.  The issue is that most of the time they are already under contract and we do not have the luxury of seasoning the money in time, and the deal blows up.

Evelyn that is great you have an LO you can trust.  But there will be times that the situation will be out of his/her control because the Buyer made the cash deposit before the LO had a chance to talk to them, and then the LO is left scrambling around trying to come up with a legal solution.

Lottie, thank you.  Glad you found both blogs worth reading, and I hope future blogs will also meet your expectations :)

Ed, unless it is a CHFA Mortgage (they require 90 days) you only need to season the money for 60 days.  So 61 days from the deposit you can re-submit the deal if the Seller and Buyer are in agreement to wait that amount of time.

Gene, it is hard to example why even though it is their money, it is not acceptable.  The "It is my money and no one has a right to tell me what to do with it" is a tough one to argue with.

Helen, it has to do with money laundering, fraud, and terrorist activity as I commented above to  Suzzanne #18.  I am not a fan of government interfering in our personal lives, but this is one I understand, because it is addressing possible illegal activity.

Tim, yep a big problem.

MaryKay I like his comment as well, there are a few colorful comments on her that had me laughing.

Patricia ..... LOL ..... and the cash was not the only cold thing in the box with the money ..... LOL

Jay & Michelle, I would love to see an acceptable way of doing that, but it is hard to draw the line once you start to make exceptions.

Kathy it is a major issue when it comes to documenting enough assets.  The guidelines have been tight for a while and they are becoming even tighter.

Sep 21, 2013 04:23 AM
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT
George, Thank you for another timely post. I had a closing delayed for a client who had relocated from the UK. It was next to impossible to get the British bank to provide the documentation the underwriter required. He ultimately had to pull funds out of his retirement account.
Sep 21, 2013 04:28 AM
Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

I had the same question as Suzanne - if you can put down a large amount of money, who cares where it came from, but I see from your response it's to reduce illegal movement of money. 

This is good to know and to discuss with buyers as soon as possible in the process.

Sep 21, 2013 05:10 AM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

George, I know why this is. But at some point, I never thought I'd see the day when cash was such a problem! Life is so different from when I (we) were growing up!

Sep 21, 2013 05:44 AM
Sidney Kutchuk - Realty Works Temecula Kutchuk - Realty Works Temecula
Realty Works Temecula - Temecula, CA
Realty Works Temecula

George:  This problem is not discussed very often....but it's a teeth clencher when it pops up out of the blue!

Sep 21, 2013 07:39 AM
Maureen Bray Portland OR Home Stager ~ Room Solutions Staging
Room Solutions Staging, Portland OR - Portland, OR
"Staging Consultations that Sell Portland Homes"

That term Mattress Money reminds me of my Irish grandmother.  She didn't trust banks and kept money under the mattress.  When she passed away, there was quite a stash!

If you have enough cash to buy a house outright with no mortgage, then is mattress money OK to use?

Sep 21, 2013 08:03 AM
Nick T Pappas
Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, I agree that it's so very frustrating when you tell your client not to move money around, buy things or make large cash deposits especially just before closing and then they do it anyway giving an off the wall excuse like..."I didn't think it would be a problem"...the problem is they didn't think!  Or, they simply didn't listen to what we were saying.  More than one buyer has lost a loan...lost a home...because "they didn't think"!

Sep 21, 2013 08:24 AM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

The only thing money can grow in a mattress is mold lol.

Sep 21, 2013 09:01 AM
Paddy Deighan MBA JD PhD
http://www.medicalandspaconsulting.com - Vail, CO
Paddy Deighan J.D. Ph.D

I had to smile when I read this....in a prior life, I told cosmetic surgeons that in order to book a case, their competition was the mattress...gotta motivate the patient to go into the mattress

Sep 21, 2013 09:37 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Gail, yes getting documentation from foreign banks can be a challenge.  Hopefully he put the money back into the 401K from the UK money once the Closing was over.

Kat the sooner they can be informed of this, the less likely it will be an issue, though some of them don't listen.

Nina, you are right.  When we were growing up, credit cards were just starting to be used, and cash was truly king.

Jane teeth clincher is putting it mildly, not a pleasant experience.

Maureen yes you can use it, but the IRS may have some questions on where it came from.  I know that Bank will question anything over $10,000.

Nick not thinking or feeling they are the exception always created issue.  I love it when they play dumb after they have been told and still do it.  I had one of those conversations on yesterday.  They get more then just a little piece of my mind when it happens.

Laura, yes  but it is such lovely mold ....... LOL

 

Sep 21, 2013 09:39 AM
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

I had a guy with mattress money.  When the loan would not go through he said his dad would jsut give him more to complete the sale with all CASH.

 

About a year later he was busted for drugs.   Early in my career and didn't see that one coming.

Sep 21, 2013 10:16 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Oh yes, the ole "mattress money" thing!  I also read William Feela's comment #45.  Buying a house with that type of cash conjures all sorts of images.

Sep 21, 2013 11:46 AM
Kelly Young
The Platinum Group Realtors - Colorado Springs, CO
Colorado Springs Real Estate ~ 719-226-0126

George, you illustrate very well how important communication is and probably a big difference between a good mortgage broker and an average mortgage broker. Someone who will fully delve into and educate their borrowers are probably more likely to have a successful outcome versus the suprises that come later.  I also think educating us, as agents, is also helpful so that we can support the communication effort.  In our ever changing world this is a very important issue as you clearly illustrated.

Sep 21, 2013 01:46 PM
Edward Gilmartin
CRE - Boston, MA

I had one deal with 30% down ...the buyers accountant adised him to put less down because his low income did not justify having $200,000 in savings...He was a self employed painter...lots of cash jobs.

Sep 21, 2013 10:58 PM
Frank Castaldini
Compass - San Francisco, CA
Realtor - Homes for Sale in San Francisco

When I work with buyers I communicate with the lender to be sure everything needed is in hand and verified.  When I am looking a offers I call the buyer's lender to determine if they have everything they need.  Mattress money has never come up for me, that I can remember.

Sep 22, 2013 12:32 AM
Anna "Banana" Kruchten
HomeSmart Real Estate - Phoenix, AZ
602-380-4886

George excellent advice is our increasingly more complex lending market.  One mess up and it's back to square one.  Get advice before starting the home buying process is indeed the best move possible.

Sep 22, 2013 06:17 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Myrl mattress money is a problem that has been around for a long time, and a problem that seems to never go away.

Kelly you are right, we are a team and the team needs to be on the same page.  The more all of us stay on top of a transaction the better the odds it will come to a successful completion.

Edward, I can understand the Accountants concern.  That could have been a red flag for the IRS and a lot of explaining for the both of them.

Frank, one reason why you may not have come across mattress money, is that most of the time it is not discovered until the Underwriter is underwiting the fill and full verification takes place.  That could be a couple of weeks after the loan has been put into process, and the LO would not have knowledge of it until then.

Anna you are right, and many times the mess up could have been easily avoided.  When it come to obtaining a mortgage the saying "There is no stupid question" truly applies.  Better to ask the stupid question, then end up with a stupid mistake.

Sep 22, 2013 10:35 AM
Kevin A. Guttman-Author, ReverseMortgageSpecialist
NMLS #384936 - Colorado Springs, CO
877-251-9709

Good post George.

 A lot of borrowers don't realize this can be an issue.

Kevin

Sep 23, 2013 05:02 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Kevin you are right and it is an issue that pops up more times than it should.

Sep 23, 2013 09:36 AM