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“Mattress Money” and Mortgages


Written By: David Reed
Thursday, March 19, 2020

One of the more important things lenders look at when evaluating a home loan application is how much money is available for the transaction. There needs to be funds showing enough money for the required down payment, if any, closing costs and some extra funds left over after closing called cash reserves. Cash reserves are counted as the number of months worth of house payments that are left after the loan has closed. If the total mortgage payment, including taxes and insurance, is 2,000 and the cash reserve requirement is three months, there should be an additional 6,000 available. This is on top of the down payment and closing costs. But these funds have to be verified as yours.

Verification is done by reviewing recent copies of bank statements. If your savings account shows 20,000 and the checking account statements show regular deposits on the 1st and 15th, the lender will begin to tally the total amount available and when enough funds are verified, the loan application continues through the approval process.nbsp;

But in this scenario, the funds are short by 5,000. The down payment, closing costs and reserves needed add up to 30,000. Thats okay though, because at home in the vault, there is 7,000 in cash ready for you to use any way you wish. You take out the 7,000 and deposit it in your checking account. Yet theres still a problem. Even though youve saved up those funds over the past year or so, you may not be able to use them. At least, the lender wont count them as yours. This is called mattress money. Loosely meaning the cash is stuffed in your mattress at home. Its frustrating because you know the funds are yours and yours alone, but the lender is ignoring them.

The issue here is there is no way to source where those funds came from. Are the funds a personal loan? If so, at some point the loan will need to be paid back. Will there monthly be monthly payments and if so, how much? In both instances it can affect the ability to repay the mortgage.

If its cash saved up and you know youre going to buy a home in the future, pull the cash out of the vault and into your bank account. This will let the funds season over time and the lender will not question where the funds came from. How long does it take to season funds? Theres no universal guideline but in general funds may be considered yours after two or three months.

If the funds are from the sale of a car, provide a copy of the bill of sale, copy of the check and copy of the deposit into your bank account. If the funds are a gift from a family member or qualified donor, again provide a paper trail. But if its cash at home, mattress money, put it in the bank as soon as able.nbsp;



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