Proof of funds - 3 days before closing.

3 Replies

Friday at 430 bank calls to tell me I cannot use my two gifts totaling 24000 toward my down payment on my second three family. They say because it is an investment property gifts are no good. Closing was supposed to be this coming week. I submitted gift paperwork over a month ago and now I’m hit with this. Advice? Suggestions?

A similar situation happened to us last summer. A bank decided that funds from my spouse’s account were a gift to me with 36 hours to go before closing.

Cue a giant eye roll.

We had our attorney explain the situation to the seller’s attorney - ‘the bank of idiots has done xyz’ - with a proposal that the seller carry back the disallowed ‘gifted’ balance until the deal otherwise closed, at which point we would write the seller a check outside of the closing for the disallowed ‘gifted’ funds the seller carried back.

In our case the ‘gifted balance’ was only a fraction of our down payment.

The seller agreed, because they wanted to sell and did not care about the source of our funds, and the HUD was adjusted to reflect the seller carry back.

And we closed.

Originally posted by @Bradley Miller :
Friday at 430 bank calls to tell me I cannot use my two gifts totaling 24000 toward my down payment on my second three family. They say because it is an investment property gifts are no good. Closing was supposed to be this coming week. I submitted gift paperwork over a month ago and now I’m hit with this. Advice? Suggestions?

Lender screwed up back when the process first started and they preapproved you. This is not a new or even unique or unusual rule. I can only conclude that this is one of the first REI loans that this loan originator has ever done -- some will go an entire 20 year career without learning the nuances of investment property residential lending. There are many potential solutions, but they needed to have been identified months ago.

Only thing I can suggest moving forward is to be more thorough when interviewing and hiring a lender. If you have absolutely no clue how to do that, it's not crazy to defer to your agent, since they hand-hold folks going through this a dozen times a year (if not more). In my market (Oakland & California), 1 in 3 purchase transactions involving a mortgage does not close at all -- and that's all loans, including vanilla 20% down owner occ SFR with very liberal guidelines. I can only imagine what that number would be if they zoomed in just on real estate investors & all the zillion extra guidelines that REI face.

Some huge chunk of the Agency guideline content is essentially "oh you can do this amazing common sense thing to get you into a house!!!! ...Unless you're investing, in which case you cant..." to wit:

FannieMae.com:

See? It's essentially "oh you can always use a gift, for anything, all the time!!!! ...Unless you are investing, in which case you can't use it at all no matter what."

Jesus, this is my nightmare. I try to use commercial lenders, typically if the gift money is not secured by the subject property it would be okay. Can you delay closing and go find a commercial lender? this will definitely piss everyone in the deal off. If you have a financing contingency they should have no ability to go after you for damages. If you can take this deal quickly to another lender and give the sellers a preapproval quickly they may very well give you the necessary time.