Mortgage loans credits

Bonus Income

admin — Sat, 07 Mar 2009 10:39:35 +0000

Some bonus or miscellaneous income can be used to document acceptable source of funds.
The basic guideline is that these funds must be fully documented to verify their validity. Each lender makes the final decision about specific fund sources. Some examples of often
acceptable sources of funds include the following:
1. Regularly expected bonus
2. Commissions above normal average
3. Income from a special short-term contract
4. Wedding gifts
5. Tax refunds
6. Gaming and lottery income

IRA and 401K accounts

admin — Sat, 07 Mar 2009 10:38:34 +0000

The net cash value of pension funds, such as individual retirement accounts (IRA) or 401-K accounts, are acceptable sources of funds. Instead of cashing these retirement accounts, however, applicants are often allowed to borrow against the current cash value of these accounts.
Proceeds from these accounts are treated just like funds from investment portfolios. They should be documented with copies of the most recent statements, the disbursement check and the deposit slip.
Even if no loans are made against these retirement accounts, the vested balance can still be used to satisfy reserve requirements.

Rent credit

admin — Sat, 07 Mar 2009 10:37:37 +0000

This variation of the “lease to own” option is acceptable as liquid assets with conditions. With most lenders, only that portion of a buyer’s rent that exceeds the property’s appraised market rent can be treated as cash accumulated for down payment. The original lease must contain an option to purchase provision specifying rent credited toward purchase.

Subsidies from seller or lender

admin — Sat, 07 Mar 2009 10:36:41 +0000

Most programs allow the seller or lender to pay the borrower’s closing costs and a small portion of the down payment. These subsidies are normally limited to 3% of the purchase price or refinance loan amount.
The primary documentation requirement for seller subsidies is an addendum or amendment to the purchase agreement. Lender subsidies normally do not need any additional documentation.
Note that if the seller subsidy is being used for the down payment, there are limits. Actually, there are minimum down payment requirements for the borrower, as described in the “Cash Gift” section of this article.

Real estate commission

admin — Sat, 07 Mar 2009 10:35:57 +0000

If the buyer is a real estate agent, he or she may want to use his or her share of the real estate commission to satisfy asset requirements. The acceptability of future funds varies from lender to lender, and program to program. Some lenders allow the agent to use the projected commission to cover projected closing costs, as well as satisfy asset requirements. Other lenders and programs will not

Stocks, bonds and money market funds

admin — Sat, 07 Mar 2009 10:34:29 +0000

Investments in securities—such as stocks, bonds and money market funds—are acceptable liquid assets. Some institutions allow the applicant to borrow against market value of their investments. In such cases, these margin loan funds are treated as secured loans. If the applicant will be liquidating investment funds, the following processing tasks are normally required:
1. Most recent statements. The processor should provide copies of the most recent asset statements for the investments.
2. Liquidation check. Investment liquidations are normally remitted to the individual investor with a check. The applicant should make a copy of this check before depositing it and submit it to the lender with any accompanying summary statements.
3. Deposit receipt. The applicant should immediately deposit the liquidation check and provide the lender with a copy of the deposit receipt.

Life insurance policies

admin — Sat, 07 Mar 2009 10:33:36 +0000

The cash value of a whole life insurance policy is an acceptable liquid asset. Most loan applicants are allowed to borrow against this cash value, and those funds are treated as secured loans. If the loan applicant were to default on that secured loan from the insurance company, the insurer/creditor can deduct the past due balance from the life insurance policy’s cash value.
The loan proceeds from this insurance policy have similar processing requirements as secured loans.

Sale of assets

admin — Sat, 07 Mar 2009 10:32:33 +0000

Proceeds from the sale of the borrower’s personal or real property are acceptable liquid assets, as in the case of current homeowners who are selling their current properties and purchasing a new home.
The main challenge is to document the source of funds to be used for closing. For example, it is acceptable for the applicant to sell a car or jewelry to gather cash for the closing. However, the applicant must provide documentation of the sale and the borrower’s receipt of funds. If real estate is being sold to generate cash, the seller will normally receive a certified HUD-1 settlement statement from the closing agent. This statement is the typical documentation requirement.

The sale of other possessions—such as jewelry, electronic equipment, luxury items and cars—require more documentation:

Bill of sale. A signed bill of sale identifies the details of the sale.
Copy of payment check. The loan applicant selling the item should only accept a check payment, preferably a money order or cashier’s check. The applicant should then make a copy of the check before depositing it.
Deposit receipt. To properly document qualifying cash assets, the applicant must deposit the sales proceeds and provide to the lender a copy of that bank deposit receipt.
Automobiles. If the asset being sold is a car, the applicant must also explain why that car is no longer necessary.

Secured loan proceeds

admin — Sat, 07 Mar 2009 10:30:09 +0000

Funds derived from a loan secured by a personal property or real property owned by the borrower may be considered as acceptable liquid asset. Of course, these debts must be included in the applicant’s debt-to-income (DTI) qualification ratio. Unsecured personal loans (e.g., credit card cash advance, signature loans, personal loans, etc.) are normally not eligible for conforming loans. However, some non-conforming programs will allow unsecured loan funds.
Lenders are very concerned about potentially borrowed funds, because these would increase the borrower’s liabilities and may disqualify the borrower’s debt-to-income ratios. The borrower must explain events that may indicate borrowed down payment funds:
New account. A savings or checking account that was recently opened may indicate borrowed funds.
Sudden deposit. An existing account that suddenly contains a significantly higher than average balance may indicate the deposit of unacceptable funds.
New loans. A new loan may indicate that the applicant has borrowed money for the down payment. A more serious event may be if the lender sees several inquiries on the credit report indicating that the borrower is racking up debt. For example, if the borrower’s credit report shows several inquiries by car dealerships, the lender will want to know if the borrower has just obtained a car loan.
Undocumented money. Due to verification difficulties, “cash on hand” and “mattress money” are not acceptable liquid assets with conforming loans; however, many nonconforming lenders will accept them.

Cash gift

admin — Sat, 07 Mar 2009 10:27:39 +0000

Gifts from relatives are normally acceptable source of funds, with restrictions. If the applicant is using gift funds, the applicant is still required to have sufficient personal funds to cover a minimum portion of the down payment:

97% LTV loan. If the applicant will be providing a total down payment of only 3% of price, that entire 3% must come from the applicant’s personal funds. Gift funds may be used for closing costs and reserves, but NOT for this minimum down payment.

95% LTV loan. When the total down payment is 5%, the first 3% must come from the applicant’s personal funds. The remaining 2%—as well as other closing costs and reserves—may be covered by gift funds.

90%+ LTV loan. If the applicant will be providing at least 10% of down payment, the first 6% must come from the borrower’s personal funds. The remaining 4% and more—as well as other closing costs and reserves—may be covered by gift funds.

When gift funds are being used, the loan processor will require additional items to verify that the funds are acceptable

1. Gift letter. The gift letter must come from a qualified donor (relative) and must clearly state (1) the relationship between the borrower and donor and (2) that no repayment is expected or implied. Gifts or equity credits from the builder or seller are not acceptable gift funds.
2. Donor source documentation. The donor must demonstrate that they have the funds to give as a gift. Copies of the donor’s bank or asset statements for the accounts from which the gift funds will be drawn must be provided.
3. Copy of gift check. The applicant must make a copy of the gift check provided by the donor.
4. Verification of deposit. The applicant must verify that he or she has deposited the gift funds. A deposit slip indicating the date, account and amount should be sufficient.