Question about source of Down Payment for Closing

6 Replies

We have had a HECK of a ride getting financing for our 4th Vacation Rental, but are finally getting ready to close. 

We are using a conventional 15 yr investment loan through TD Bank. They want to see our 30% downpayment liquidated prior to setting the closing date. 

Question - my husband would like to borrow the $75K from our Etrade credit, he says it does not show up on our credit report so we should be fine

My feeling is that the bank is going to want to see which account was depleted of the $75K and that this borrowing will cause a problem. We of course could sell our stocks to get it, he does not want to. 

The bank has asked for every piece of paperwork you could think of during this process, so does anyone in the know....know? 

Thank you in advance - this has been a very stressful process and we don't want any more delays. 

Maura 

I am going through the exact same thing. The requests for documentation is much more than our owner occupied (4th loan) just a few months ago, even though that was a VA loan and was pretty heavy on documentation itself. They didn't want K-1s from our LLC in the last loan, but they want every one for this closing. We close next week and we did what you suggested. We borrowed against hubby's TSP account.

The bank wanted "liquid" funds, to include 2 months reserves for each property we own. (I am thankful it isn't 6 months reserves!) For the last loan, it was fine to have this remain in an investment account; for this one, they want it "liquid" and want to see it leaving the old account and arriving in the new account, with no screenshots allowed. The part that made me uncomfortable is that the underwriters required me to close my oldest and biggest credit card before they will release funds. This one was in my name, rather than in the name of my W-2 earning hubby. I fully expect my credit to take a big digger now, by losing a 15 year old line of $25,000 on one single credit card. Yet we are less than a week from closing...so what else to do?

I expect the underwriters to ask me to change the name of our firstborn soon! LOL

I commiserate. I'm starting to look for "alternative funding"

Kerry Baird, UR Home Investments | http://www.urhomeinvestments.com

Hey @Maura Paler

It sounds like what your husband is talking about is a margin loan, where your current securities act as collateral for the loan. As far as I know there is no reason that the bank would want you to prove liquidation, they should only be concerned with a proof of the funds. As long as they don't suspect the money came from illegal sources or ill gotten gains, there shouldn't be any issue. The only thing I can see that would cause an issue is if your lender requires the down payment not made from the proceeds of a loan, or in other words, they don't want you to owe on 100% of the house, in which case you can liquidate the 75k from a position in your TD Bank account (preferably equities and not mutual funds) and immediately invest the margin loan in the same securities. Essentially now you own securities on margin, and have funds you liquidated for the down payment to show the lender, plus you keep the same investments, but now your technically paying interest on your investments instead the down payment. 

Hopefully that makes sense.

Adam

If you qualify well above what you need reserves-wise without using the stocks as an asset, then maybe it will be fine either way, but count on them actually wanting a printout of the statements covering that account for several months leading up to and including the transaction and proving that you pulled the funds from the account, which will show that you used margin, not actual liquidated assets.   It might change the way they calculate things debt-wise even though it is technically covered by your stocks.    We had to jump through so many ridiculous hoops right before closing that we almost just gave up.  

In order for Underwriting to approve your file, the funds needed to close will need to be liquid, in an account that you can use to wire funds to the title company or escrow agent. Funds needed can NOT be borrowed, unless the loan is secured by a financial asset and this is documented. Acceptable examples are a HELOC or a 401k loan. As long as the loan is secured by your brokerage account this should be fine, unless your bank has an overlay disallowing this.

Originally posted by @Michael Smith :

In order for Underwriting to approve your file, the funds needed to close will need to be liquid, in an account that you can use to wire funds to the title company or escrow agent. Funds needed can NOT be borrowed, unless the loan is secured by a financial asset and this is documented. Acceptable examples are a HELOC or a 401k loan. As long as the loan is secured by your brokerage account this should be fine, unless your bank has an overlay disallowing this.

 This was really helpful - and correct. We would have missed our closing date if we went ahead with how we were planning to get the down payment - so thanks!