Top Tips for Using Cash to Close on Real Estate

Hi guys, Jim Duffy with Alcova Mortgage. And I want to talk today about something that seems very, very simple and sometimes complicates the loan process unnecessarily, and that is documenting cash to close. It complicates on necessarily the loan process and therefore just create some stress that doesn't need to be there.

So let's talk about common ways that people come up with cash to close, right? One way is a gift, right? What if part of the funds to close are your money, but part is coming from a family member. Mom, or dad, or grandma or grandpa, whoever wants to generously help you into a home. And I think that's awesome. It's not hard to do, but there's a way to do it.

So we'll give you a gift letter both you and the donor. Your mom, dad, grandma, fill it out. And then in some cases, we actually need a bank statement from the donor. Other times we don't, but we'll let you know when we do. FHA requires a bank statement, conventional loans don't. Not to remember for you right now. I wouldn't even think about it. We'll tell you what we need.

The key is for gift funds, let's not over complicate it by moving the funds into your account. We know they're going to be there at closing. Let's have the donor keep them in their account, wire it to the closing attorney or the title company the day before closing.

Another way is a lot of people use cash in a business account, right? They have their main business or a side business, and they're using cash from a business account. Perfectly doable as well. Oftentimes though, that we'll just need proof that using the funds from your business account will not adversely affect your business.

It's not going to hurt your business, right. And the easiest way to do that it's just a letter from your CPA saying, yeah, we've looked at some numbers. I don't think it'll hurt your business. Very easy to get. But no, using business funds is not a problem, but we might need a little more documentation. Another common thing I've seen lately is you sell something.

A lot of home buyers sell one asset to get the bigger asset, which is the home, right, to get the down payment. So you might sell a boat or motorcycle or a car or whatever it is. All of that is perfectly doable. We just need paperwork. If it's not on paper, it didn't happen. Says my underwriter and every underwriter.

So a copy of the title, keep a copy, keep a copy of the bill of sale, and show that all of the money went into your account. And finally, I'll come to what seems to be more and more common these days is cash saved at home. Again, I said it before, I'll say it again. If we can't document it, it's like it never happened.

And one thing we can't document is cash in a safe at home, buried the tin cans in the backyard, under your mattress, wherever you keep the cash, right? If you deposit a bunch of cash into a bank account, we can't use it because we can't document where it really came from. And really what we're documenting, we're not trying to get into your business, we're just trying to document for the loan purposes.

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Is this a loan that you need to repay, or is it really money that's free and clear that you have? And that's all we're trying to do and you can't do that with cash saved up at home. So how do you get around that?

Well, prepare ahead of time. If you're going to be buying in two months, a lot of times we need two months bank statements to verify assets. Deposit the money before you ever start looking for a home, and let it season there, right? Once it's in your account for 60 days, it's your money, we're never going to ask where it came from. But if we see a large deposit, we have to ask, we need some documentation or time to show that.

So I hope that helped. Again, it's just one of those things that I see as probably one of the most common things that's a sticking point during the loan process, which is documenting cash to close. It doesn't have to be. We know that we have to do it upfront and follow our lead because we will lead you right there just as the easiest way to document whatever it is, wherever the funds are coming from.

But please just follow that lead. So if I can help you with a home loan, please reach out today. I'm glad you found this channel and I'm glad you found all the experts here. And if I can help reach out today, I'll be happy to. I'll talk to you soon.