When Cash Is Not King

Really, he was trying to help. Knowing that he needed a clean paper trail for the money they’d use to buy a house, he opened a new account. Since the bank puts holds on checks for the first month, he cashed his paychecks at the old bank to put cash in the new account.

Then he met me and the fun began.

These days when you’re buying a house, we get super nosy about where your down payment is coming from. When your bank statement shows deposits that aren’t payroll, we want to know where those funds came from. If they are from “non-allowable” sources, we can’t count those deposits towards your closing money.

In this case, an entire month of cash deposits to the account is not being allowed. A reasonable person can see the paystub, the cashing of the paystub at the old bank, and a like amount being deposited to the new bank the next day. But mortgage these days isn’t always reasonable. We can’t exactly match the cash to the paychecks, so we can’t use it.

What to do? Luckily, the loan program we’re using allows gift funds, and luckily, we have parents who are able to give the gift of a down payment. This will involve seeing the parents’ bank statements, and thankfully they are willing to share them.

Had we been using a different loan type, or had this been the purchase of a rental home, we might have hit an insurmountable problem. Not all loan programs allow for gift funds.

The moral of the story is this: If you think you want to buy a house, hold still on all financial matters until you get a local loan pre-approval. Don’t move money, don’t pay off loans, don’t change jobs, don’t open or close credit cards.

You need exacting professional advice before you shop for a home. Getting a mortgage these days isn’t hard, but being fully aware of how you qualify in relation to current guidelines can make the difference between an easy escrow, and a gut-churning waiting game.