Thursday, 17 August 2017

What business is it of theirs?

Written by Posted On Thursday, 22 December 2016 19:31

In the real estate business we often hit cases where a buyer may need to tap into the Bank

of Mom and Dad or perhaps another relative.  Many times these transactions take place in secret, without the buyer informing his mortgage company. The common attitude is, “What business is it of theirs if I get some help from mom and dad?” Unfortunately, it is their business and they will discover it anyway when they look at the detailed bank statements that the underwriter will ask to see perhaps going back as long as six months or more.

 

 

Why is that their business? Well there are a couple of reasons that mortgage underwriters look to see where the money is coming from in a real estate sale. One reason is an unfortunate sign of our times and that is that real estate sales have often been used by drug dealers to launder their ill-gotten gains. Any large sums (and not that large to attract attention) that flow into the buyers account in the last six months will be questioned and documentation demanded for the source of those funds. If you sold something else, maybe

even another property, and the money came from that, you will need to document that sale.

 

 

Perhaps the money is coming from parents or relatives. That’s not illegal or necessarily bad, if it is a gift; however, the underwriter is going to want proof that it is a gift and not a loan, which would count against your debt to income ratio. You will be asked to provide a letter from the person giving you the money that states that it is a gift with no expectation of it ever being paid back.  If there is any expectation that you’ll pay it back “once you get on your feet”, it will be treated like a loan and probably screw up your debt to income ratio and could cost you the mortgage.

 

I’ve also seen buyers go out and spend money for things like furniture for the new place or maybe even a new car after they’ve been pre-qualified, but before the underwriting is done. They also think, what business is it of theirs if I buy furniture or a car. What does that have to do with the house mortgage? Any new and big expenditures like those will also impact your debt to income ratio and could screw up the mortgage process.

 

The bottom line is that once you apply for a mortgage, your life becomes an open book, at

least to the mortgage underwriter. He/she is going to want to know everything about your and your finances. The amount of detail that the underwriter may ask for and the depth to which he will probe may surprise and even annoy you; however, he is trying to learn enough about you very quickly to make a call for the bank on whether or not you are a good credit risk and will be able to repay the loan. You might not be able to repay it if you are in jail because it was drug money  or if you also have to repay that relative who so kindly “loaned” you that money for your down payment.

 

 

 

So, it really is their business and they are usually very good at it, so don’t think you are going to outsmart them with a wink and a nod to your parents about their “gift”. The penalties for fraud, which is what that would be, are quite stiff and could even land you in jail right next to that drug dealer.

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Norm Werner

Norm Werner is a Realtor at the Milford office of Real Estate One serving the southeastern Michigan area of Oakland and Livingston Counties. Norm specializes in residential real estate. Norm lives and works in Milford Michigan and is married to Carolyn Werner. Norm and Carolyn live in a historic home just three blocks from downtown Milford, with their two dogs - Sadie and Skippy. Norm specializes in the historic homes of Milford and the surrounding area and is on the Board of Directors of the Milford Historical Society. Norm especially enjoys working with first time buyers and those at the other end of the real estate spectrum who are downsizing into their retirement home. 

In addition to his Movetomilford.com web site, Norm also owns and m,aintains TheMilfordTeam.com web site, the HuronValleyRealtor.com web site. He is also the webmaster for and the MilfordHistory.org web site and the MilfordCar Show.com web site, as well as his church web site - Spiritdrivenchurch.com. In addition to blogging about real eastate, Norm has a personal blog - NormsMilfordBlog.com - on which he shares inspirational messages and the occasions personal observation about life. 

www.movetomilford.com

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