February 24th, 2020 7:45 AM by Jackie A. Graves, President
What is “mattress money?” It’s a funny term but it means funds
that someone owns but does not have a paper trail. Let’s look at how mattress
money can be viewed by a lender and how to document these funds. It’s a good
thing to come across some extra cash. Maybe the sale of a car or a small
inheritance or someone just gave you some funds to help you buy a home in the
future. However it’s acquired, it’s always better to have more money than less,
One of the more important things lenders look at when evaluating
a home loan application is how much money is available for the transaction.
There needs to be funds showing enough money for the required down payment, if
any, closing costs and some extra funds left over after closing called “cash
reserves.” Cash reserves are counted as the number of months’ worth of house
payments are left after the loan has closed. If the total mortgage payment,
including taxes and insurance, is $2,000 and the cash reserve requirement is
three months, there should be an additional $6,000 available. This is on top of
the down payment and closing costs. But these funds have to be verified as
Verification is done by reviewing recent copies of bank
statements. If your savings account shows $20,000 and the checking account
statements show regular deposits on the 1st and 15th, the lender will begin to
tally the total amount available and when enough funds are verified, the loan
application continues through the approval process.
But in this scenario, the funds are short by $5,000. The down
payment, closing costs and reserves needed add up to $30,000. That’s okay
though, because at home in the vault, there is $7,000 in cash ready for you to
use any way you wish. You take out the $7,000 and deposit it in your checking
account. Yet there’s still a problem. Even though you’ve saved up those funds
over the past year or so, you may not be able to use them. At least, the lender
won’t count them as yours. This is called mattress money. Loosely meaning the
cash is stuffed in your mattress at home. It’s frustrating because you know the
funds are yours and yours alone, but the lender is ignoring them.
The issue here is there is no way to source where those funds
came from. Are the funds a personal loan? If so, at some point the loan will
need to be paid back. Will there monthly be monthly payments and if so, how
much? In both instances it can affect the ability to repay the mortgage.
If it’s cash saved up and you know you’re going to buy a home in
the future, pull the cash out of the vault and into your bank account. This
will let the funds “season” over time and the lender will not question where
the funds came from. How long does it take to season funds? There’s no
universal guideline but in general funds may be considered yours after two or
If the funds are from the sale of a car, provide a copy of the
bill of sale, copy of the check and copy of the deposit into your bank account.
If the funds are a gift from a family member or qualified donor, again provide
a paper trail. But if it’s cash at home, “mattress money,” put it in the bank
as soon as able.
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