FHA Down Payment - Option 1

Here's a question I get from time to time: "My borrower wants to use cash for his down payment. Will this be a problem?"

The answer to the question is, "Yes," but here's the deal. Cash saved at home (aka cash-on-hand; mattress money) can be used for their down payment and closing costs, however, a word of CAUTION -- if they DO have checking and/or savings accounts, a lender is less likely to allow money from under the mattress. I have done this before and the underwriter asked my client for a written statement stating that he did not have an account at any bank.

Be careful though. I would then ask how much money does the borrower need for a down payment. $10,000? Per the guidelines, we must determine the reasonableness that this money was judiciously saved based on the borrower's income, the period of time the funds were saved, overall spending habits, and use of financial institutions in general. We must also verify the actual money by seeing it either properly deposited into a financial account or given to the title company in anticipation of closing.

Next time we will look at another down payment option outside of the norm. Til then....