The Proper Source for Your Cash-To-Close

02/12/2016 By Scott

What is cash-to-close?

Cash-to-close is the amount of funds that you will be required to bring to the closing table when you sign the final documents to make the house your own. It includes the purchase price of the home plus lender’s fees, appraisal fees, title company closing costs, required down payment, costs to start your escrows for property taxes and insurance (and more) MINUS the funds you are borrowing (the mortgage), earnest money deposit, seller concessions, and in Indiana, the prorated property taxes that the seller owes the county but is not due yet.

While it may sound odd to the borrower, it is very important to provide proper asset documentation and the actual source of the funds for the earnest money deposit, down payment and closing costs. Lenders use the term sourced and seasoned meaning that the funds came from a verifiable source and can be proven to be available at closing.

For example, if your employer pays by direct deposit, it is easy to match your pay statements to the deposits in your checking account making the verification process easy. However, if you receive a physical paycheck, you should always deposit the entire check and then withdraw any required cash. This way, the lender can see the exact amount matching the paycheck being deposited on or near the payroll date. If you were to cash the check, pocket some of the funds and deposit the remainder, it will be more difficult to show where the funds came from.

Since the underwriter typically wants to see two months of bank statements, it’s important to pay attention to what your account looks like before you start house shopping. While it’s true that the underwriter wants to make sure you have enough funds to close, they may be less inclined to loan you hundreds of thousands of dollars if you have numerous overdrafts on your account. They like to see good money management skills.

A Few Acceptable Sources Of Down Payment Include:

Bank Accounts – checking and/or savings. It is usually best to have all the necessary funds in one (or maybe two) accounts instead of many different accounts.
Investment Accounts – money market and mutual funds. Will need to see a statement showing the available funds and the “paper trail” if the funds have to be sold and the cash moved to a checking account
Retirement Funds – keep in mind that borrowing against a 401K plan or other retirement accounts may require repayment and that could affect your debt-to-income ratios. It is always best to check your plan guidelines first.
Life Insurance – Cash value and face amount. Will need to show that these funds are available to use.
Gifts – Family members can gift (no expectation to be paid back) down payment funds with certain restrictions. This is usually reserved for gifts from parents (or step-parents), grandparents, brothers, or sisters. There are a few exceptions to the family member rule, so ask us if you have someone willing to gift you the funds.
Inheritance / Trust Funds – must show evidence that funds are available and, if this is a large source of monthly / yearly income, that the funds are sufficient to continue.
Government Grants – Some state, county, and city agencies offer special down payment assistance programs. Many are recorded as a 2nd lien (a loan to you) and then forgiven if you stay in the home for a predetermined period of time. If you don’t, they may have to be repaid.

Warning – Unverified sources of cash are NOT acceptable. This includes “Mattress Money”. If you need $5,000 for closing costs and have $10,000 on hand but only $4,000 can be sourced and verified, you will NOT be able to close.

It is very important to discuss the source of your down payment and closing costs as early in the loan process as possible to make sure that it will be acceptable to the underwriter. While it is OK to use funds from your wedding or to sell an asset such as a car to get the necessary cash, it must be documented well and in a way that the underwriter will accept.

At the closing, you will need to have the funds wired from your account or bring with you a cashier’s check for the closing costs depending on the amount. While you can wire smaller sums, any amount over $10,000 MUST be wired to the title company prior to closing.

Searching For A New Home?

07/22/2015 By Scott

Beware Of These 5 Potential Red Flags During Your Home Search.

There are numerous factors that a home buyer will consider when visiting homes; everything from the location to the layout to the asking price. While all buyers have their own ideas of what makes a perfect home, there are some factors that they need to be aware of and keep their eyes open for. A few of these red flags are listed below to serve as warning signs when touring your potential next home.

Signs Of Poor Or Deferred Home Maintenance

Unless the home is new construction, you should expect to have some signs of wear and tear. Since it is common for the sellers to make the home as presentable as possible before listing it for sale, a home that seems to be in poor shape should be a warning sign. If the sellers have not kept up on the aspects that you can easily see when walking through it, you should consider what other problems you may find that are not easily visible.

The Grading In The Yard

When approaching your prospective new home, be aware of how the yard is graded. In other words, when it rains or the snow melts, does the water flow towards or away from the house? If the water flows towards the home, issues with flooding and erosion are concerns. Even small issues such as downspouts not discharging the rainwater far enough away from the home can cause flooding or even structural damage.

Something Smells Fishy (Or Worse)

It is pretty common for someone selling a home to want it to smell as pleasant as possible. They may use deodorizers to mask a smell or even bake bread or cookies to make the home seem more appealing. It’s important for a home buyer to determine if this is just a tactic to make you want the home more or to cover up an underlying issue such as mold, mildew, or even backed-up sewers or leaking gas.

Repairs To Only One Area

Many times a homeowner will repaint or redecorate a wall to make it look more appealing, cleaner, and brighter. This in and of itself is not cause for alarm, but use some caution if you note that one wall or section of a wall appears to have been recently painted and/or repaired. This could be something as minor as covering a child’s drawings to as serious as water damage and mold.

Signs Of Wildlife And Other Pests

Another red flag could be the signs or pests or even wildlife that has invaded the home. Even if you don’t see an army of ants in the kitchen, a wasp nest in the bedroom, or a raccoon in the living room, the presence of bug spray, traps, and other related items may be a clue that the seller has an issue with unwanted pests.

While some of these warning signs may be obvious when you walk through a prospective home, others may require more skill and specialized equipment to see. Because of this, it is always a sound idea to order a home inspection to learn more about the condition of the home before agreeing to finalize the purchase of what is probably the largest investment you will make in your lifetime.

Photo by kevin dooley

Manufactured Home Loans

01/11/2015 By Scott

Loans for Manufactured Housing

What are manufactured homes?

A manufactured home is a structure that is built almost entirely in a factory. The house is then placed on a steel chassis and transported to the site where it will be permanently located. The wheels are then removed, but the chassis stays in place. They can come in many sizes

and shapes; from simple one-story homes to ones that are large and complex and do not look like the were built in a factory. They are not built under existing local building codes, but under the guidelines of HUD, the Department of Housing and Urban Development.

While many use the terms manufactured and modular interchangeably, these homes are constructed differently and follow different lending guidelines.

What are the benefits of a Manufactured Home?

There are several benefits to purchasing a manufactured home. The greatest benefit is the cost. Since the cost of construction is generally less than that of a similar-sized home built on-site, the manufacturer can pass the savings on to the buyer.

There are several reasons why the cost of construction is less, but they include the following:

Since they are constructed in a factory, weather and darkness do not interfere and cause delays.
The building materials can be purchased in bulk which saves money.
The building is much less susceptible to theft, vandalism, or weather-related damage.
Since the builder does not have to get construction financing, the costs can be passed on.

Is it difficult to get financing to purchase an existing manufactured home?

Not really! Many manufactured homes can be purchased using a conventional mortgage with a 5% down payment or a government-backed loan under FHA guidelines with just 3.5% down. USDA does not currently allow financing on preexisting manufactured homes but will lend on new homes. Most borrowers that will qualify for financing on a traditional home will be able to secure a mortgage on one that is factory built.

Get more information on FHA Loans or Conventional Loans for manufactured housing.

Are there any additional requirements when I apply for a mortgage?

The only differences are in the appraisal and inspection process. The appraisal is a little more detailed, but that is something that the appraiser will handle. Due to this, the appraisal is usually a little more expensive.

The only other difference is that the guidelines require a structural inspection to verify that the home is correctly attached to the foundation, whether it be a slab or a crawl space. This requires a structural engineer ‘s report and usually costs around $400.

Both the appraisal and the inspection fees are usually paid prior to the inspections being completed, so there are some additional out-of-pocket costs that may need to be budgeted for.

What do I do now?

If you are interested in purchasing a manufactured home, the first step would be to get preapproved. This allows you to make sure that there are no existing issues with debt or credit that need to be addressed and often make you look better in the eyes of a seller when you submit a purchase offer.

You may fill out an application here.

If you have questions or need additional information, feel free to contact me at 219-695-0369 or email scott@nwiloanguy.com.