Is your money safer today in the stock market or tucked inside your, hopefully, Duxiana mattress? If you answered “mattress,” you’re in luck. (And probably a whole lot richer, unless you bought Apple in 2005.) You can use the money you’ve saved inside the mattress springs – or left in the chair cushions — to help cover the down payment on a new home.
And if you’ve used that cash to buy a really great mattress like a Dux, even better!
Here’s the deal: the Federal Housing Administration is now allowing borrowers to use “cash on hand” — that is, money that they’ve saved at home but not had stored in any bank or financial institution — for down payments on FHA-insured loans. This is a near-miraculous decision because FHA has been EXTREMELY picky about down payments, practically wanting to know the color of the freckles on your hand as you touched the cash.
I recently spoke with my fave mortgage guru, Marcus McCue, senior vice president at Plano-based Guardian Mortgage, to shed some light:
Candy: So borrowers can now use cash they’ve built up at home to cover their home down payments. That sounds simple, but knowing FHA bet it isn’t.
Marcus: The FHA isn’t going soft on borrowers. They’ll still have to meet certain conditions, and they’ll have to ease any concerns their lenders might have about how they managed to save this money.
Candy: What is the main challenge for borrowers who want to use cash on hand for their down payments?
Marcus: They’ll have to explain in writing how they were able to accumulate their home-saved cash and how long it took them to get it. Then they’ll have to convince their lenders that they actually raised that money themselves, that it wasn’t a gift or obtained illegally.
Candy: Oh yeah, they are worried about the gift thing. I have a feeling lenders will be doing WAY more work, too, when it comes to this rule.
Marcus: Lenders must then take a careful look at the written statements from their borrowers to make sure they make sense. For instance, if borrowers make a combined $50,000 a year, they might not be completely truthful when they tell their lenders that they were able to save up $60,000 in six months by making their own coffee at home every morning.
Candy: I’d save $30k if I stayed out of Starbucks. What is the FHA worried about?
Marcus: The FHA doesn’t want borrowers to use “dirty money” or to lie about where their dollars came from when making their down payments. It’s why the administration is telling lenders to look at their borrowers’ monthly income streams, spending habits, documented expenses and history of using financial institutions when determining whether their cash-on-hand claims are reasonable.
Candy: What is this, the Gestapo? I feel like the government is turning banks into the KGB and giving lenders way more work. But the folks at Duxiana should be happy.