How is it that I can’t get a loan?

[Allen Lopez]

Hello BP, I have a headache from trying to figure this out. So last year mid summer I sold one of my town homes, it was fully paid off so I ended up getting some cash around 95k. The money sat in my bank for a while (I was looking for a good investment opportunity). In the December, I signed a contract for new construction of what would be my primary residence. I was going to give 20% down and the rest would be going towards an investment. So I would need $30k for closing with a closing date of mid July.

In late March, I found an amazing opportunity that I couldn't passed up a SFH for 105k with 30k in equity. One of my close friends (best man at my wedding) have me $30k as a gift. And another close friend gave me 6k. I use that money and some of the money I had to buy the property cash.

No the bank is telling me that I do not qualify for the loan.even though I still have 35k in my bank account. We still have to months for closing (meaning that with income from work and rentals, I will have an additional 16k in my account before closing.

My credit score is 786. I have 3 properties worth 330k,96k, and 136k(I just bought). I have another mortgage on a house that is a rental property worth 350k, but have a loan of $220k left on it. A car with payments of $630/month. And a credit card bill of 8k.

My debt to income ration is like 0.2 (monthly expenses are around $2500/month, and income is around $11,000/month.

Long story short, all I see that could be a problem is the gift, but this being for my primary residence and the fact that I used it to buy an investment property should not be an issue. Additionally, more than half of the money needed for closing is not coming from the gift.

Lastly, before anyone ask, it is really a gift, not trying to fraud or anything. This is my best friend. When I started investing, I helped him invest $5k and that turned into over $75k in a couple of year. He works for An airline company the source of the money can be verified.

Any thoughts? Help? Am I wrong in believe that there shouldn’t be a problem?

[Chris Mason]

Lurkers: Whenever you have a mortgage imminent or underway, you NEVER do any significant/unusual financial transactions without checking with your LO. Fannie Mae guidelines are over a thousand pages long. Do one "wrong" little thing that violates what a single bullet point on page 359 of 1425, and boom you're done, doesn't matter if you fully comply with the other 1424 out of 1425 pages. Pendulums don't just stop in the middle, that pendulum was swung pretty far in 2007, and it brought that momentum with it when it swung the other direction.

@Allen Lopez Since you didn't call your LO first, I'm guessing you commingled the non-family gift funds with your own main down payment funds for the new house? Start over with a new lender (if you're working with a mortgage broker, have her start over with a new lender), two months means enough time for two clean bank statements without any crazy money movement to hit prior to closing. And in the future, see my above commentary directed to lurkers. 

Back to lurkers: When you have unacceptable funds introduced, underwriters must "back it out" by subtracting that amount from your balances. But if you already spent that money, they still back it out, meaning you get hit twice. Example:

• You have $50k. You get $30k from some random unacceptable source (friend who isn't family gifts it, drug money, Al Qaeda, sold a car or painting but didn't do any paperwork, you just walk into your bank with $30k cash and deposit it, it makes zero difference in the world, unacceptable is unacceptable).
• Your balance is $80k.
• You spend that $30k, doesn't matter on what. Your balance is back at $50k.
• An underwriter "backs out" the $30k. $50k minus $30k equals $20k.
• Underwriter will treat it as if you have $20k even though your real balance is $50k. 
• If your cash to close is $22k and this $50k is all you have, your loan will be denied due to "insufficient funds to close." 
• You can send copies of your bank statement in over and over again showing $50k, it doesn't matter, they will subtract $30k from whatever you show them.

The most ridiculous example I've personally encountered, and I don't work with this lender any more but it still happened, was someone that wanted to save paperwork and a wire fee. So they walk into Bank A, pull a bunch of $100 bills out, cross the street, buy a burrito (so they could feel like a baller by unrolling a roll of $100s for a burrito, I guess), walk into Bank B, and deposit it along with their pocket change less the burrito. 

Underwriter asked for updated bank statements from Bank A, showing the reduced balance. 

Underwriter asked for updated bank statements from Bank B, showing the increased balance. 

The withdrawal didn't match the deposit exactly (due to burrito and pocket change), so "theoretically" drug money could have been introduced since you can't validate that it's the "same" money. No burrito receipt. Underwriter "backs out" the entire deposit, and also uses the reduced balance in Bank A.

We had to close with 5% down, and the 5% down PMI, and couldn't do the 10% (less costly PMI) that was the plan all along.