What Is Mattress Money?

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

Documentation has always been important in the Lending Industry, but most likely it has never before been as important as it is today.   Today it is document, document, and then document some more.  One of the areas documentation has substantially increased is in documenting assets.  If an asset can't be documented, then it can't be used in qualifying for a mortgage, except in the possible case of being used as a Compensating Factor.  A monetary asset which cannot be documented is referred to in the Lending Industry as Mattress Money.  Before I go on to explain the problem with using Mattress Money, let me define What Is Mattress Money it a little better.

Mattress Money can actually be money that is stuffed in a mattress, but more often than not it is money being held by the Borrower in cash some place other than a bank account, and cannot be documented where it came from.  Therefore, Mattress Money as I stated above, cannot be used towards down payment or closing costs, since Underwriting Guidelines clearly state all funds have to be documented.

There are several reasons why someone may have large sums of money in their house or in a safety deposit box.  They can range from trying to avoid paying taxes on the money, to an off the wall reason like a friend of mine had.  I did a loan for a friend who had taken all of his money out of the bank when Clinton became President.  He was convinced Clinton was going to bankrupt this county, and he did not want to have his assets frozen when it happened. 

While my friend's reason for not having his money in the bank is a bit eccentric, it was not illegal.  However, trying to avoid taxes, or money laundering is illegal, and that is where the origin of the need for documenting assets came from, and 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 30 to 90 days depending on the Mortgage Program the Borrower is applying for.  This is referred to in the Lending Industry as Seasoning the funds.  So if Mattress Money is identified early in the Mortgage Pre-Approval process, it can be deposited in a bank account, and available when the Borrower finds a property and goes under contract.  But if the Mattress Money is not know until the Borrower is under contract, then there is not enough time for it to be deposited for the necessary time (Seasoned) and the Borrower will not be able to use it.

So why can Mattress Money be used as a Compensating Factor?  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 the money really exists needs to be provided.  By depositing the Mattress Money it can then be proven it exists.   Even though the Mattress Money has not been Seasoned, it can be used to show the Borrower has a large amount of funds in reserves, which then gives strength to the loan. 

Another area money may come from a legal source, but may not be used is Gift Money, .  Money maybe gifted, but in order to be used for a mortgage it has to come from an authorized gift source.  I am not going to go into detail on Gift Funds in this blog, but you can follow this link on Gift Funds to one of my blogs which will explain Gift Funds in more detail.

This is why at my earliest contact with a Borrower I start to discuss the funds they will need for down payment and closing costs, and where funds will come from.  Does the Borrower already have it in the bank?  If not when, where, and how are they getting the funds?  By asking these questions I am able to identify the source of the funds and if we are going to have a problem with documenting them.  If I know early in the process we need to have money Seasoned, then the Borrower can start Seasoning the funds right away.  

This all comes down to a Loan Officer anticipating problems before problem exists.  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, if you do problems are going to occur, and transactions are going to blow up.

What Is Mattress Money?  It is a little more than money stuffed in a mattress.




 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, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net


Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Aaron Poling 10/13/2014 04:48 AM
  2. Praful Thakkar 10/19/2014 08:40 AM
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Joni Bailey
101 Main St. Realty - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

Hi George! Lisa (Comment 47 above) beat me to the punch. I have a friend that keeps a large amount in a hidden safe for that very reason. YIKES!

Oct 13, 2014 06:08 AM #48
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

George, my grandfather called his dogs and shotgun money. He did not want any questions from my grandmother when he bought his toys. I have run into a similar problem trying to sell small commercial property. I will ask for the P&L statement and the answer is well the books do not show much profit because I paid for all of these personal expenses out of the business. Most don't understand that a potential buyer can not go to the bank with a weak P&L and an explanation that the current owner is trying to avoid paying the IRS.  

Oct 13, 2014 07:16 AM #49
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

I am going to keep this to show buyers. It's great information. I had a deal almost derail because they wanted to use $25,000 cash for some of the down payment. oh no you can't. We found it elsewhere, seasoned, but it was close. 

Oct 13, 2014 07:29 AM #50
Colleen Fischesser Northwest Property Shop
RE/MAX Advantage | Managing Broker - Chelan, WA
A Tradition of Trust in the Pacific NW since 1990!

This was a very big issue when I first entered the industry and we have many new immigrants looking to buy who operated on a cash only basis. That was more than 20 years ago but it's still an issue.

Oct 13, 2014 08:28 AM #51
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, I'm well aware of "Mattress Money", also that it only needs to be seasoned, but buyers for what ever reason don't always share what they need to up front...even when told. Great explanation and I hope many buyers read this.

Oct 13, 2014 09:15 AM #52
Adrian Willanger
206 909-7536 AdrianWillanger-broker.com - Seattle, WA
Profit from my two decades of experience

George, this is really very good explanation of how the money process works in the mortgage industry. I know over the years I've had buyers get pools of money from friends and family to help with their purchases, I'm glad I had good lenders and knew what to do. 

Oct 13, 2014 09:17 AM #53
John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

George, I thought this post might be a 2 word blog, stating simply "the devil".  Mattress money can cause so much headache to an otherwise simple process.  Like Gene Mundt, Chicago-area Mortgage Lender - www.genemundt.com I've had a borrower photocopy bills and fax them to me as evidence of a cash deposit.  The funny part is underwriting accepted it!

Oct 13, 2014 10:00 AM #54
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

George Souto I remember those days when my Dad bought our first apartment with Mattress Money...lol! 

Oct 13, 2014 10:30 AM #55
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

I only recently learned about about "seasoning" funds.  The buyer had funds from the dad that the seller and my self were unaware of.  Dad delayed in getting the funds to the son and we had to let them "season" and everything was delayed for 30 days.  It was not pleasant.

Oct 13, 2014 11:38 AM #56
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Good post about where funds need to be, and why!  I'm sure getting a wire from Columbia doesn't raise any flags either . . . LOL

Oct 13, 2014 11:51 AM #57
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, I had a buyer last year that was fearful of banks after having his identity stolen and when it came time for the down payment he had a $40,000 lump in the mattress that took a year to season

Oct 13, 2014 11:57 AM #58
Fred Cope
Reliant Realty in Nashville, TN - Nashville, TN
Looking For Homes With A Smile

Hello George. In the 1980's when double-digit inflation and interest rates reigned, there was a first cousin to Mattress Money known as Mystery Money.  Most often the mystery was a home builder who thought he would "help" the buyer get into a home [one of his homes].  The mystery came with a maze.  Mom and Dad made a gift (lets say $3000) to buyer, and the helpful builder "replinished" their funds.  

Result ?   DOCUMENTATION OF SOURCE OF FUNDS, suspension of some builders from HUD programs, and a few became wards of the State/Federal Gov't.  

Another Result: Federally funded DOWNPAYMENT ASSISTANCE programs.


As to documentation of Mattress Money, I agree that the LO has to get on top of "Funds To Close" at the onset of loan application.  I have had applicants that retained their bank statements, and a thorough review of several months would show a pattern of cashing their paycheck, withholding a consistent amount of funds from each.  My underwriter would accept a cover letter detailing the time frame, amount saved, copies of supporting bank statements and paystubs as documentation.  We used the 1010 Fraud statement on the cover letter, and HUD accepted the underwriter's justification.

On other occassions, when documentation was not plausible, I would suggest they deposit all paycheck funds, and use their cash to cover incidentals such as gas and lunch money, but continue writing personal checks for rent money, car payments, etc.  All done with full knowledge of the underwriter, and monitored by the loan processor.  We must caution against making large cash deposits, particularly in close proximity to execution of purchase agreement contract.  Back then, there was no issue with applicants paying cash for credit report and appraisal fees; and earnest money payments less than 2% of purchase price did not have to be documented as long it was in line with applicants' financial picture.

As the IRS has horned in on the lending industry, such common sense underwriting has been hampered.  The consumer is treated as a thief & liar while government agencies have assumed oracle status upon Mt. Sinai.  Time will come that things will return to common sense business models.

Oct 13, 2014 12:25 PM #59
Fred Cope
Reliant Realty in Nashville, TN - Nashville, TN
Looking For Homes With A Smile

Generally, LO's know--they can smell the deception when someone attempts to use illegal money.  I have known numerous single moms with their "sugar daddy's" backing, attempt to put up illicit funds.  One character was laundering drug money by getting "straw buyers" [dependent girlfriends] to buy houses through various lenders.  Obviously, they know little about Residential Mortgage Credit Reports.  On a few occassions, I have gone to the restroom to look in a mirror: I thought I was going to find a tattoo on my forehead that said, "Dumb Guy."

Oct 13, 2014 12:44 PM #60
Larry Johnston
Broker, Friends & Neighbors Real Estate and Elkhart County Subdivisions, LLC - Elkhart, IN
Broker,Friends & Neighbors Real Estate, Elkhart,IN

Hi George,  Thanks for explaining the term "mattress money" and its limitations. Documentation is always King.

Oct 13, 2014 01:01 PM #61
Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366
Dry Rot and Water Damage www.tromlerconstruction.com Mobile - 916-765-5366 - Placerville, CA
General Contractor, Dry Rot and Water Damage

and here I thought I knew what mattress money was George. Thanks for the detailed explanation.

Oct 13, 2014 03:07 PM #62
Kimo Stowell
HI Pro Realty LLC RB-21531 - Honolulu, HI
REALTOR Associate® RS-76763 - Honolulu Hawai'i

Aloha George,

Any purchase transaction that involves cash in the amount of $10,000 or more must be reported to the IRS with an Form 8300. There are several caveats that place the seller in danger of running afoul with the IRS with severe penalty's if one should advise the buyer on how to avoid using the 8300 where required, all related to money laundering.

I have heard many stories of people who just didn't understand how serious the government is on this issue and despite their ignorance, paid dearly for it. Recently we had a seasoned agent here in Honolulu, found guilty for laundering money through a home purchase. This agent, however, knew exactly what she was doing and was busted big time.

It's why one cannot close on a property overnight or even within a week with a 100% cash transaction, without all the necessary documentation and properly seasoned funds. 


Oct 13, 2014 05:10 PM #63
Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living

George, I'm afraid there are still a lot of people with "mattress money".  While it may be ok as an emergency cash stash, they do need to be aware of the limitations.  Thanks!

Oct 13, 2014 08:45 PM #64
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

George.  EXCELLENT IDEA.  The parents may NOT want the children to know - - - for many reasons.

I know from experience that all of my children and their children and their children were born with their hand out, palm up.

Oct 13, 2014 10:12 PM #65
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

George, This has been an interesting post to follow. I've come back twice now just to read the additional comments. Lenn actually commented three times. Amazing.

Bill Roberts

Oct 13, 2014 11:54 PM #66
Lynn B. Friedman
Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ... - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

George Souto 
Really enjoying your GLOSSARY posts this morning! Lots of great information for everyone.
Have a happy day -

Oct 19, 2014 02:38 AM #67
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