Funny money for mortgages getting a hard look
There is a synicated piece in the Chronicle today on a Nevada company’s program to ‘rent’ you a bank account full of money when purchasing a home.
“Need a hundred grand on deposit to convince a lender that you deserve a million-dollar mortgage? You’ve got it … even though you haven’t really got it, because you “rented” it from a company in Nevada for an up-front fee of 5 percent — $5,000.”
You don’t actually ‘get’ the money. They rent you an account and verify to anyone that calls that the money is yours.
The article goes on to discuss the FBI’s potential investigation of this company for fraud, of course.
What this ‘rental’ seeks to solve is the problem of having enough reserves to satisfy mortgage lenders for the size of the loans that people are taking out these days to purchase a home.
If you need a $900,000 mortgage (on a $1.2M home, for example), the bank will expect to see somewhere around $100,000 in reserves in the bank AFTER you have made your downpayment and closed escrow. This makes perfect sense, but when so many people are stretching to afford housing these days, they often can’t afford to keep that much money in the bank.
The banks are basically interested in seeing six months’ worth of all of your payments at-the-ready. The sources for this money could include savings, stocks, life insurance, and 401k or IRA monies as well.
The other ‘service’ that this company was providing was a ‘verification of employment’ for a fee. If you have just lost your job but can legitimately afford the home you’re in escrow for, the bank will pull the loan if they can’t verify that you are currently employed. Even if you have taken a sabatical (a voluntary maternity/paternity leave, for example), the banks look down on that and will want to see two years of job history prior to lending you any money.
I don’t condone what this company was/is trying to do, but it does offer the opportunity to see some of the pitfalls that you might run into when looking to purchase a home. Talk to your mortgage broker as far in advance as possible and give them as much info as you can. It will save you a lot of heartbreak in the long run.
