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!
Tags: atlanta, atlanta real estate, Better Homes and Gardens Real Estate Metro Brokers, Buyers, closing, debt, Fannie Mae, FHA, Freddie Mac, georgia, Metro Brokers, Metro Brokers Financial, mortgages, Real Estate, real estate agent, VA