Why Cash Can't Be Used for Your Down Payment?

The problem with cash is that there is no solid way to track where it comes from. Because of certain requirements within the mortgage industry, cash doesn’t fit neatly within the guidelines. For that reason, you cannot use cash to make a down payment or use it for your earnest money when buying a home. 

Reason for all bank statements?  

The purpose of this two-month look-back is to determine if there has been any significant increase in your bank balances over the past 60 days. This is a standard procedure mortgage lenders use to determine if loans or gifts may be the cause behind the sudden increase in your balance. The 60 days look-back period is often referred to as seasoning of funds, which is how a lender determines if a down payment source is acceptable.

If they identify a significant increase in your account balance, the lender will require that you provide documentation as to the source of funds. You will then have to prove that the source of the increase in your account balance was not either a loan or gift.

Not following these rules can affect your loan approval, so it's suggested that you speak to your loan consultant first before you add any non-payroll deposits to your account. 

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All mortgages have this own funds requirement because lending experience has shown that homeowners are much less likely to default on a mortgage. 

One of the complications with conventional or FHA mortgages is that they usually require that you have a certain minimum amount put toward the purchase of a home. This is particularly true any time the new home's total down payment is less than 20%.

That minimum requirement is usually somewhere between 3% and 20% of the purchase price on Conventional mortgages and 3.5% on FHA. Their rules hold that at least that amount of the down payment must come from your own funds. That contribution for the down represents your actual equity in the home, apart from any gifts or secondary financing that you might obtain to cover the rest of the down payment.

All borrowers must have their own funds or Gift funds because lending experience has shown that homeowners are much less likely to default on a mortgage if they have an actual equity stake in the property. As such, the own funds' requirement is typically not negotiable.

 For this reason, all lenders will require a paper trail documenting both the existence and the source of your down payment funds. Since this is easier to do when money is sitting in a bank or investment account rather than in cash-on-hand, lenders will generally not accept actual cash as part of the down payment. mortgage payment calculator

One of the problems with physical cash is that it can’t be traced. That holds open the possibility that the money could be borrowed. or illegally obtained.or it is being laundered through the system. 

Technically speaking, mortgage lenders are not in the business of investigating illegal sources of cash. However, they are on the lookout not to accept money from such sources. And unfortunately, physical cash does have the potential to be the result of illegal activity. 

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