Mortgage Documentation Help (AKA I made all tlhe mistakes).

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Mortgage Documentation Help (AKA I made all tlhe mistakes).

Karen Johnson
Investor · AMBLER, PA · Member since 2013 · 158 posts · 98 votes

Hello,

Trying to secure a  mortgage for my first (deliberate) investment property and I made some mistakes. Now, I'm worried they won't approve the loan. Contract has financing contingency and contingency needs to be met in 2(!) days. If you summarize it, I really made 2 major mistakes (one of them repeatedly).

1 - Having someone else pay the earnest money deposit because I was out of town. Now, the lender needs to see me write them a check for this amount because they want to see that I did not borrow the money. It is that the money was actually owed to me, but there's no formal promissory note (short term family loan for real-estate related reasons). However, bank wants me to "re-pay" the funds for the sake of documentation. This would not be a problem if not for

2 - Moving lots of large amounts of money around in my accounts. All above board. All explainable. Not all easily documented. Largely done before we even found the property and after we were initially told conditions were all satisfied (but they were not). Now most of the money is in accounts not previously presented, and I'll need to explain (and document as well as I can) the transactions. That's the hard part.

My main concern - I'm going to try and document as much as I can. I'm not sure if it will be enough or not. I do have a financing contingency. as mentioned. If I don't get the commitment, what are my options, given that I am scheduled to close on 9/30? I believe I'm at risk of losing my earnest money. It will hurt if I do. 

Any advice for me? I'm already working on the documentation, but figured I'd post here in case there are options I haven't thought about. If there are any lenders reading this who want to PM me, I'm happy to explain in more detail to get the best advice possible.

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Shaun Weekes
Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
10y

@Karen Johnson

Although these can be potentially big errors your Loan Officer should have advised you on the process.

The EMD deposit has to be fixed so try and get that done ASAP unless you want to pull out of the deal. If you have no appraisal yet I would recommend getting out.

In regards to the bank account if it's a business account then you're fine because these accounts don't need money to be sourced and seasoned. In other words, business accounts don't adhere to the seasoning and sourcing rules. They're exempt!

If it's a regular bank account, you could be in trouble if you can't source and season the deposits.

With investors or home buyers in general it's imperative that you have a checking account or savings account that has your reserves. Don't touch that account unless it's a deposit that you can document. You only need to document the deposit for 60 or 2 bank statements.

Open up a separate account for bills, food whatever.

I hope this helps and PM me or post here if you have any other questions.

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  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    10y

    @Karen Johnson

    Although these can be potentially big errors your Loan Officer should have advised you on the process.

    The EMD deposit has to be fixed so try and get that done ASAP unless you want to pull out of the deal. If you have no appraisal yet I would recommend getting out.

    In regards to the bank account if it's a business account then you're fine because these accounts don't need money to be sourced and seasoned. In other words, business accounts don't adhere to the seasoning and sourcing rules. They're exempt!

    If it's a regular bank account, you could be in trouble if you can't source and season the deposits.

    With investors or home buyers in general it's imperative that you have a checking account or savings account that has your reserves. Don't touch that account unless it's a deposit that you can document. You only need to document the deposit for 60 or 2 bank statements.

    Open up a separate account for bills, food whatever.

    I hope this helps and PM me or post here if you have any other questions.

    1Reply
  • Karen Johnson
    OP
    Investor · AMBLER, PA · Member since 2013 · 158 posts · 98 votes
    10y

    Hi @Shaun Weekes,

    Thanks so much for the response. I can't fault my loan officer because they DID advise me, but unfortunately a lot of the damage was done before we started the process. Unfortunately, these are personal accounts. I didn't realize that business accounts were exempt. I will have to open a business one for the future.

    Striving to gather up all the documentation I have now, but will PM you when done. 

    Appraisal is done and all set. If I pulled out of the deal now, wouldn't I still lose the EMD?

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  • Elizabeth Grahsl
    Lender · Dallas, TX · Member since 2015 · 19 posts · 14 votes
    10y

    If you pull out before the financing contingency expires, you shouldn't lose your earnest money. Just say you couldn't get approved for the loan - which would be true. In reality I know it happens but it's rare for someone to actually lose their EMD. There are all kinds of ways out of real estate contracts. Just be open with your realtor and see what he or she advises.

    Also be open with your loan officer.  As a lender myself I'd be doing everything I could to help you obtain exactly what we need so we don't all lose out on this deal at the last minute.  The deposit verification is a pain; I went through it myself a few months ago doing a refi and it was a nightmare because we'd just invested in two private equity deals and had moved money from two brokerages and around 3 different checking accounts to fund the investment right before we applied for the refi.  I just made an excel spreadsheet and sifted through each statement and made a note next to each big deposit or withdrawal as to what it was ("wire from X account, see related X statement"; "payment to Susie for services rendered"; "payment from Bill for XYZ."

    Documentation doesn't mean you have to have proof of what the thing was.  For most small amounts, you simply have to email them an explanation - a simple email is the documentation.  Don't overthink it; you don't need to generate an invoice for a payment that a friend made to you unless they gave you like $10,000 or something.  Just email the loan officer an explanation and go from there.  Note: although for really big amounts like if you got a gift from a parent for $20,000, they'll ask for a signed letter from that parent saying it was a gift not a loan.

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  • Karen Johnson
    OP
    Investor · AMBLER, PA · Member since 2013 · 158 posts · 98 votes
    10y

    @Elizabeth Grahsl - thank you for this! I will call my realtor. I was thinking I should do this, so I appreciate the confirmation. If nothing else, perhaps the seller would be willing to push out the closing date so I can try to secure other funding. I really hope it doesn't come down to that, though.

    There are some large amounts involved, and unfortunately because it's an investment property and not a personal residence they will not allow me to give a gift letter. The initial request they made was for a gift letter for the EMD, which I provided and they subsequently declined when the underwriter remembered it was an investment property.

    I'm pulling together spreadsheets, bank statements, credit card receipts - basically anything I can think of right now. Thank you for your advice and I'll keep you posted!

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  • Karen Johnson
    OP
    Investor · AMBLER, PA · Member since 2013 · 158 posts · 98 votes
    9y

    I just wanted to say thank you @Shaun Weekes for your advice, which was very helpful. I got the final approval for my loan today and we are set to close on Friday as planned. I learned a lot from this process and from your replies. I don't plan on making the same mistakes again, and I think I'll be much better prepared whenever the next deal comes along.  Thanks again!

    2Reply
  • Elizabeth Grahsl
    Lender · Dallas, TX · Member since 2015 · 19 posts · 14 votes
    9y

    Great! I'm so glad it worked out. :)

    1Reply
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