The problem with cash is the Patriot Act. What? What does the Patriot Act have to do with cash? The Patriot Act is the reason that if you drop your garage sale money or the gift that your Aunt Emma gave you for Christmas into your checking account and then decide to buy a house we will send you to obtain the paper trail for the money or ...if there is no paper trail, not allow you to use the money in your home buying transaction.
I had a client I worked with last year that had several thousands for his down payment stored in his freezer. (I am not kidding-the money was in his freezer.) It was his money he argued. Why couldn't he use it? The reason he can't use it to purchase a home is because every loan program that I can access for my clients has the fingerprints of Uncle Sam all over it. Whether it is the Federal insurance or guarantee that come with FHA and VA or the fact that Fannie Mae and Freddie Mac are entities that are controlled by standards set by the Federal Government with respect to conventional loans-all of them are regulated by the Federal Government. (There may be private investors out there that provide money for mortgages but that ain't my gig so I don't know much about those.) So with all that Federal oversight, what that means is that the Patriot Act applies to banks and lenders-and ultimately to you.
Still don't understand how your $500 cash deposit has anything to do with the Patriot Act? You probably remember 9/11-right? The 9/11 highjackers paid for all their mayhem with cash. Cash that rolled into their bank accounts unnoticed because in 2011 no one paid any attention to deposits. So in an attempt to track terror plots, lenders and banks are now required to prove the paper trail for all large deposits. That includes your friendly neighborhood bank or mortgage broker. Which means you.
What you may ask constitutes a large deposit? That is where it gets tricky. The Federal Government has said that large deposits must be sourced, but they don't define what constitutes a large deposit-in the lending world anyway.
I think we can all agree that my prior client's frozen thousands would constitute a large deposit. But I have seen $200 be declared a large deposit. I think a good rule of thumb is that any deposit over 25% of your gross monthly income would be considered a "large" deposit.
Here's the thing...if the deposit came from a check or wire from another source such as the US Treasury, or direct deposit from your employer-no problem with the money. It can be traced to the source. But if it came out of a hole in the backyard where it has been buried for a year-then there is a problem. Unless...
The money is deposited and you wait for two months of bank statements that don't show the deposit - then you are okay. Lending requires two months of bank statements to process a loan. If the money is in the bank on two successive bank statements after the month of the deposit-voila! The money is good.
You can anticipate that transfers from your mom's account or even from an account that belongs to your spouse but does not have your name on it will beg questioned. Those are generally not a problem as we handle them as "gifts" by seeing the money in the transferring account prior to the transfer and then obtaining a gift letter from the owner of the originating account.
We want you to be able to use all the money that is coming to you. We never like to disallow money-it can sometimes mean that someone has to delay or not complete a transaction. The simplest way to remember all this is that when it comes to buying a home-all money must be accounted for-so be sure that any cash deposits are small and not monies that you depend on for the down payment.
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