Closing Killers: Unexplained Deposits

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mortgage closing killersHomebuyers who are taking advantage of the great home values and historically low interest rates are finding the mortgage qualifying process much harder than ever before.

I’ve put together several stories based on real buyers from recent deals that were almost killed by the top “Closing Killers” in the market today. The names have been changed to protect the innocent.

Our first story is about a first time homebuyer couple who barely escaped the sneaky Closing Killer, “Unexplained Deposits” who is part of the Closing Killer gang led by “Opening New Credit”!

Harry and Sally were buying their first home. The house had originally sold for over $250,000. Harry and Sally were able to secure a signed contract for $134,500 with the seller paying all closing costs. They had applied for an FHA 30-year fixed rate loan, putting down only 3.5%. They only needed $4,700 for down payment and 2 months reserves of the PITI (principal, interest, taxes and insurance) payment to qualify for the loan. When they finally sent their current monthly bank statement to the mortgage processor, it showed a current balance of $16,000! Much more than what they needed to close! But wait… did this bank statement reveal a possible Closing Killer: Unexplained Deposits”? YES!

Their previous bank statement’s ending balance was $3,200. Harry and Sally had payroll deposits for the month totaling $5,800. This would have only totaled $9,000 if Sally and Harry had not spent any money that month from this account! So, there was a total of $7,000.00 in “Unexplained Deposits”, a major Closing Killer! I know, you’re asking “what does it matter?” They have more than enough money, what’s the big deal with them having this other money? Having more money than they need is a good thing, right?

Wrong. Mortgage lenders such as Fannie Mae, Freddie Mac, FHA and VA are now requiring their underwriters to review all details of a borrower’s file to make sure there are no changes in the borrower’s credit profile between time of loan application and closing.

Was the $7,000 deposit a clue that Harry and Sally had opened NEW DEBT WITH A NEW MONTHLY PAYMENT?  If so, this new debt would change their ratios and possibly make them no longer qualified!

The $7,000 deposit had to be “fully documented” in order to get loan approval from the FHA Underwriter. Sally thought she could just write a letter stating that she had sold a car. No such luck! Here are the items the FHA underwriter wanted in order to document where the $7,000 had come from:

  • Proof that Harry and or Sally had owned the car.
  • Copy of the bill of sale.
  • Copy of the check from the buyer dated near the date of the deposit.
  • Blue book value of the make and model of the car sold.

This story has a happy ending. Harry and Sally closed and are now in their beautiful new home.

Check back for the next “Closing Killer” blog post about buyers moving from Idaho. The deal killer, “Opening New Debt”, threatened Sam and Sue Spud’s deal!

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10 Responses to “Closing Killers: Unexplained Deposits”

  1. Anne Langley Says:

    Thanks, Judy. Every little thing you do does matter especially when trying to buy a house. Now we have to caution our buyers not only about spending money prior to closing we need to caution them about selling any of their belongings. We need paper trails for everything.

  2. Lloyd Carver, Loan Officer Says:

    Thanks for the post Judy. As one of your loan officers, I am having underwriters question a $200 deposit let alone a $7,000 one. Gone are the days of being able to “back out” unexplained deposits and most of our lenders will not accept a VOD (Verification of Deposit) in lieu of bank statements anymore. The other issue is that we go back two months on bank statements and by the time the borrower contacts us for a home loan, the damage (unexplained deposits) has been done.

  3. Britt Argo Says:

    Thanks so much for the story, Judy. There are so many new guidelines and restrictions. It is easier to understand with real life examples. Will pass these tips onto our buyers.

  4. Sandi Rodrick Says:

    Can’t wait for the next installment. “Opening New Credit” is a slippery culprit and hard to catch until the closing is a goner but with Dectictive Jones and her crew in the “Major Mortgage division” they just might curtail the activities of the Closing Killer’s best gang member. Hopefully, after serving their time, buyers will be able to see the error of their ways and “Major Mortgage” can resurrect a few closings from the “Cold Case” files!

  5. Deborah C. Taylor Says:

    Thanks Judy for this story. I will continue to pass tips to buyers.

  6. Arthur Harris Says:

    Great article Judy, buyers have to be more vigilant on keeping the necessary documents to show any purchases or sales made on their personal effects right up to closing .

  7. Judy Jones Says:

    Some clever borrower are trying to avoid having the underwriter see information on their bank statements that could raise questions by using a permanent marker to totally blackout the information. Unfortunately, all they are managing to do is delay their loan by sending in a useless piece of paper.

  8. Terry Young Says:

    Thanks Judy! I use to let my buyers know NOT to buy anything on credit either . . . now I need to tell them not to deposit the “Gargage Sale” money too!! As always you are on top of things. Keep it coming – we need all the help we can get.

  9. ann bone Says:

    I can’t wait to read about Sam and Sue Spud!

  10. Vernon Holsclaw Says:

    I’m all for hitting the proverbial reset button, declaring possession to imply full ownership. All mortgages are forgiven. Starting…. now!

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