Seasoning borrowed money

34 Replies

Hey guys just some quick questions. I am looking to buy my first duplex which I will rent out one unit and live in the other. I will be going for an FHA loan 3.5% down. #1 - What I'm wondering is if I were to borrow money from a friend how would I be able to get a mortgage without the bank knowing that I have borrowed the money? #2 - If I borrowed the money and had it deposited into my account how long would it need to sit there for the bank to say it's my money and not question where it came from? For all they know it's just mattress money. Thanks

@Frank Leone

Normally, money has to be seasoned 60 days.

If the deposit is greater than 25%-50% of your income, you'll need to explain the sourcing.

Banks have other ways of looking into your balance besides what's currently on the bank statements.

As an example, if the average balance says $500, but you have $50,000 sitting in the account, it's obvious that something is up.

Originally posted by @Frank Leone :
Hey guys just some quick questions.

I am looking to buy my first duplex which I will rent out one unit and live in the other. I will be going for an FHA loan 3.5% down.

#1 - What I'm wondering is if I were to borrow money from a friend how would I be able to get a mortgage without the bank knowing that I have borrowed the money?

#2 - If I borrowed the money and had it deposited into my account how long would it need to sit there for the bank to say it's my money and not question where it came from? For all they know it's just mattress money.

Thanks

 I'm not sure I'd advertise an attempt to commit mortgage fraud here.

@Jeff Cagle Im not trying to commit a crime. Im trying to understand how the banks operate. I have contacted several loan officers to understand the inner workings of the bank. They have told me that what I'm trying to accomplish is in fact legal. Most people dont even ask these questions. The fact that I even asked these professionals was shocking to them. The fact that not many people know these things. Most people run into the bank with money they have been saving in cash and think they can do anything. When in fact you cant. I ask these questions to become a knowledgeable investor.

@Frank Leone As Christopher mentioned above, the funds need to season for 60 days (or two statement cycles). I had this same question not too long ago and figured at some point, the gift funds from another source would have to eventually be considered "your money."

I've talked to several lenders in my area and many of them are content with the 60-day seasoning period simply for the fact that the deposit doesn't show up on the statements you submit for underwriting. But, Christopher does bring up a good point about banks looking at inconsistencies between average account balance vs. current balance, and one I hadn't thought of considering nearly all the potential lenders I've talked to gave me similar answers.

Originally posted by @Frank Leone :
@Jeff Cagle

Im not trying to commit a crime. Im trying to understand how the banks operate. I have contacted several loan officers to understand the inner workings of the bank. They have told me that what I'm trying to accomplish is in fact legal. Most people dont even ask these questions. The fact that I even asked these professionals was shocking to them. The fact that not many people know these things. Most people run into the bank with money they have been saving in cash and think they can do anything. When in fact you cant. I ask these questions to become a knowledgeable investor.

You asked how you could incur a debt and have the bank not know about it. Your lender is going to ask you point blank to list all your obligations on your application, therefore you would have to lie on your application in order for the bank to possibly not know about it.

@Travis Henry But then if someone had saved let's say 8000 over a period of time without being able to provide source. That person then said hey I want to buy a house. They put the money into there account. They then wait three months. Your saying the bank could say sorry you cant get a loan because you cant prove where that 8000 came from? Even if it's only 1/3 of that persons total net income for a year?
@Jeff Cagle Lying on a mortgage document is way different. I'm trying to understand how a person who had been saving there cash for a period of time could then deposit that cash and get a mortgage using that cash I just deposited for the down payment on a home.
Originally posted by @Frank Leone :
@Jeff Cagle

Lying on a mortgage document is way different. I'm trying to understand how a person who had been saving there cash for a period of time could then deposit that cash and get a mortgage using that cash I just deposited for the down payment on a home.

 That is absolutely not what you asked. This thread is literally titled "seasoning BORROWED money".

@Frank Leone No, your original question was “how to borrow money from a friend and hide it from the bank”.......you’d have to lie on your mtg and That would be fraud.

If someone received a gift or had cash laying around.....it would be seasoned after 2 bank statements and no alarms, no fraud.

glad your asking up front.. you don't want to waste time with inspections apprasials etc only to have underwriting kill your deal.

you just need to be straight up with a very good MLO who can guide you through the proper way to do this.

@Chris Mason   is just such an individual.. maybe we can ask him to comment he works with owner occ loans as his day job.

Originally posted by @Frank Leone :
@Jay Hinrichs

I guess I just dont understand why you can be gifted money for a down payment and that's fine. But if you were to borrow money from a friend that it would be wrong.

I  am a mortgage banker... at least I passed the test.. but I don't work on that side of the table I only do private stuff when I do it.

Dodd Frank came in after the crash.. so these are the new rules.. and as stated above.. Mortgage fraud is very real and the punishment Is very strict and tough if your found to have committed it.. not worth the risk. Now granted the folks who end up with 5 year prision terms for mortgage fraud usually have a scheme running.. but all the same.. banks want YOU to have the ability to save your own money.. or they allow your family to loan it to you.. also in some areas there is down payment assistance.. and if all else fails there is USDA if that is in your market.. and if all else fails and you want to go throught this.. google NACA loans.. this is true no money down.

@Frank Leone I'm afraid I can't speak specifically to your example. In my case, I had received gift funds to use toward a down payment on an investment property and needed to season the funds for 60 days. I wouldn't have been able to (nor would I want to) convince a lender that I had $50,000 in cash under my mattress and only decided to deposit to a DDA when I was ready to purchase something.

@Frank Leone If it is gift money it doesn’t need to be seasoned. In fact it doesn’t even need to be in your account. The person gifting the money can wire the amount directly to the title company and just provide a letter that says it is gift money. I bought my house with gift money and that’s exactly what we did If the money is borrowed however there is no seasoning to it. It will be considered a debt no matter how long it’s been in your account. Of course if you wait 2 statement cycles and not mention anything about your debt on your application there’s a good chance the bank won’t find out about it but again as everyone one else has mentioned it could be interpreted as fraud.

@Frank Leone

Yes. Average income for the year.

But like I said, there are lots of red flags that an underwriter can see.

Regarding FHA, Fannie Mae has something similar, HUD has very clear guidelines about the sources of funds.

Underwriting the loan is about making sure the borrower can afford the loan.

HUD states:

"Additionally, the borrower must have sufficient funds to cover borrower-paid

closing costs and fees at the time of settlement. Funds used to cover the

required minimum downpayment, as well as closing costs and fees, must

come from acceptable sources and must be verified and properly documented."

HUD then goes out to list some of those sources.

But, it specifically states that the lender must verify and document the the deposit amount and source of funds.

if the borrower cannot verify the source of funds, or the gift giver refuses to validate the source of funds given, the loan must be denied.

Two very common scenarios:

1> Wedding gift money. It's not enough to just say "cash from wedding." The bank is supposed verify the money and get statements from the guests about the gifts.

The point is that it must be a gift and not a loan. If it's a loan and the person comes looking to be paid back, the borrower might have a hard time paying their mortgage.

2> Gift giver refuses to explain the source of the money. Happens all the time. That indicates that they have either engaged in questionable activity, or they might be under reporting income for taxes purpose.  Either reason, the bank can't approve the loan.

Borrowers who save cash at home and can demonstrate how they earned that money every month will have no problem. They just need to be able to demonstrate it.

There are also limits on how much gift money you can use depending on if its a primary residence versus a second home.

You can use a collateralized loan backed by physical assets or stocks or bonds for the downpayment.

Originally posted by @Frank Leone :
@Jay Hinrichs

I guess I just dont understand why you can be gifted money for a down payment and that's fine. But if you were to borrow money from a friend that it would be wrong.

When you fill out your mortgage app, you need to note your liabilities beyond those found in your credit report. Part of qualifying for a loan is your debt-to-income ratio, which has maximums based upon your selected loan. So if you are lent money from a friend, that won't show up in your credit report, but you'll have to tell the lender about it because your agreed-upon $100/mo repayment for the loan will affect your debt-to-income ratios and therefore your ability to qualify for the loan. Which is why if you lie and say it was a gift but its a loan, you are committing mortgage fraud. IE to go to an extreme, say someone makes $2k/mo, a friend lends them 50% of the money for a home at a repayment amount of $750/mo, and the mortgage from the bank with that dp will be $800/mo. Borrower has no other debt. Therefore their debt (1550) to income (2000) ratio is huge, and if the lender knew of the undisclosed loan, they never would have lent the $ in the first place.

@Frank Leone Not sure about the US, but here in Canada you can gift someone money. You just both have to sign am agreement stating that the money is a gift and you are under no obligation to pay your friend back. Not sure if your friend would be willing to do that though. Also I'm not sure if that option is limited to family members.