Hello, Maytag Man?

July 21, 2008 9:16 AM

Help me launder my (perfectly legitimate) money.

***Disclaimer: I do not really want to launder money. I just need to know how I can "prove" it's legitimate so my mortgage lender will OK it for my home purchase.***

My husband and I have been saving cash and coins for the past 10 years. We recently deposited it in order to purchase our first home. Now the lender tells us that we have to pretend the money doesn't exist in order to get the financing to go through, because its origin is unclear. (As I understand it, the bank may think the money is from a loan we haven't declared, which would affect the debt-to-income ratio.)

Now the problem - we need about $2k of this money for the purchase. Without it, we won't have enough for the down payment, closing costs, insurance, and taxes. How can we make this "unusable" money usable?

In case it matters, the money was first deposited into our checking account and then moved to our savings account, so there's no way to "hide" it in one or the other.

posted by Edelweiss to work & money (22 comments total)

Have a relative write you a 2k check and clearly demarcate it as a gift.

Give relative the 2k in cash.
posted by sondrialiac at 9:23 AM on July 21, 2008

I don't see why you just can't use the money for the purchase. If the financing goes through its still there. Maybe I'm missing something but all that seems to me the way you phrased it for the purposes of credit they will be ignoring that windfall. I don't see any effect that should have on you method of paying it back. Can you enlighten me?
posted by Rubbstone at 9:27 AM on July 21, 2008

Rubbstone, I think the lender thinks that they might have received the $2k as a loan and so it doesn't count when totalling up how much cash they have on hand.
posted by winston at 9:33 AM on July 21, 2008

(hit reply too soon)

A down payment is supposed to be non-borrowed money, so they want to make sure it's not being paid by money borrowed elsewhere.

Edelweiss,
I suspect that if you went to an independent mortgage broker, they could find you a lender that would have a product suitable for your situation.
posted by winston at 9:37 AM on July 21, 2008

"Have a relative write you a 2k check and clearly demarcate it as a gift.

Give relative the 2k in cash."

Others have suggested this as well, but I have two concerns: First, wouldn't it be obvious to the mortgage lender that the money was there, then it wasn't, then someone gave me the exact same amount? Secondly, would my relative then be responsible for paying taxes on the money that I gave him and get screwed in the process?
posted by Edelweiss at 9:40 AM on July 21, 2008

Edelweiss writes "Secondly, would my relative then be responsible for paying taxes on the money that I gave him and get screwed in the process?"

You can give $10,000 per recipient per year in the US and, in theory, any amount in Canada tax free. $2K as a gift isn't going to blink an eye with the tax people as long as it's not your employer. Closing usually happens fast so have your relative gift you the money now and then you can gift them the money back once you own the house when no one cares.
posted by Mitheral at 10:04 AM on July 21, 2008

Things may have changed withe the credit crunch, but generally the mortgage lender doesn't really care. They just need to check the box that says all funds verified, etc. so that the loan will clear underwriting. The relative with the "gift" really is your easiest route. I've done it several times with mortgages.
posted by COD at 10:06 AM on July 21, 2008

Something is not right here. We're talking $2,000 that you've squirreled away over 10 years, not $200,000 that mysteriously appeared over night.

Your mortgage lender is being a little whack. The $2,000 should be itemized as cash on hand or savings or whatever... this may require some re-filing of paperwork, but it shouldn't be a big deal. It's certainly not a strange or unique situation you've found yourself in.

This shouldn't be causing as big of a problem for you as it is... you should maybe talk to your broker's boss about this problem. My warning bells are going off - I think you lender is being a little clueless and-or OCD.

As for faking a "gift" donation - you would be responsible for any taxes owed, not the gift giver, but such a small gift may not even require taxes be taken out - check with your local accountant.
posted by wfrgms at 10:11 AM on July 21, 2008

you can loan people <> I agree that this won't necessarily solve your problem. they are looking for money that has been in your account for a while. hopefully it won't come down to (only) 2K. Ie if you 50K in your account and you needed 52K, that shouldn't matter so much. I agree that you should be able to find a lender, but they are being much more strict with the lending nowadays.
Worst case, you may have to put it in your account then wait a few months and try again.
posted by alkupe at 10:14 AM on July 21, 2008

oops. that should read less than 10k
posted by alkupe at 10:14 AM on July 21, 2008

I completely agree with wfrgms - $2000 is way too small an amount of money for ANYBODY to get interested in. Your lender sounds nuts.
posted by Penelope at 10:23 AM on July 21, 2008

A friend in the real estate biz tells me that mortgage lending is totally whacked right now, so I can believe this is causing issues. And remember, it's only a gift for mortgage application purposes. As long as he has a receipt to show payback of the "gift" he won't have any IRS issues.
posted by COD at 10:28 AM on July 21, 2008

Actually, I was just checking on the gift-giving amount today and in the U.S. it is now $12,000 and the gift giver is responsible for reporting and paying any taxes according to this IRS article.
posted by agatha_magatha at 10:29 AM on July 21, 2008

I should have been clearer in my original post. I need $2k of the cash I deposited. The amount of the actual deposit was $12k.

My other question about the gift-giving strategy still stands. Won't the lender notice that I took $2k out and was then given a check for $2k as a gift? Waiting until after closing to repay my relative is not really an option, as $2k is a lot of money in our families.
posted by Edelweiss at 10:46 AM on July 21, 2008

agatha_magatha: that article makes an interesting point about giving a gift to one's spouse. Since the mortgage is in my husband's name, can I say I gave him the money? Would it matter that we have joint checking and saving accounts?
posted by Edelweiss at 10:48 AM on July 21, 2008

Seriously? Write a letter stating that you had a large, pre-move yard sale, and took several years' worth of coins in to be converted to paper. Your bank should accept 2,000 in yard sale cash.

Also, mortgages are paid in arrears. You'll pay pre-paid interest at closing, but then not owe for up to at least 1 month. So you get a breather in payments. It was a big surprise to me when I bought my house.
posted by theora55 at 11:05 AM on July 21, 2008

what people are point out is that, yes, the lender will notice. However, they won't care: they just want to be able to check off that little box.
posted by milestogo at 11:05 AM on July 21, 2008

Sorry, but that article is the complete extent of my knowledge on the subject. Someone with more expertise would have to weigh in. I was just checking the total amount because I'd made a couple of "loans" to a dear friend who has fallen on hard times and didn't want to exceed the IRS total for the year (I don't really want or expect to get paid back and so I would imagine the IRS will look at the "loans" as gifts).
posted by agatha_magatha at 12:07 PM on July 21, 2008

I think the idea is that you don't pay the money back to your relative until after the sale has closed...
posted by puddpunk at 12:38 PM on July 21, 2008

I was in this exact situation. I got my hometown bank to issue me a loan using an old car I owned free and clear as collateral, and then I declared that money toward the purchase of the house. It did not affect my debt to asset ration, since it was easy to show I owned the car for some time.

The fact that my bank loaned me $10,000 on a car that was worth at most $1000 was not questioned. After the mortgage went through, I repaid the loan as well as the small fee the bank charged me for the service. If you don't have equity in a vehicle, perhaps you have another asset that can work just as well. My hometown bank knew exactly what to do, and it was clear they had done this many times before.
posted by ewagoner at 12:44 PM on July 21, 2008

Have your relative write you a letter saying that they gave you the cash on the date that it was deposited. No need to even move the money or repay anyone.

In the US this wouldn´t incur any gift tax.
posted by yohko at 1:09 PM on July 21, 2008

It may be that other peoples' experience that this shouldn't be a big deal is just too outdated to be helpful. Consumer lending is entering a new world now after the subprime meltdown, and the FED is requiring lenders to make sure that the amount of their loans are "suitable" for prospective borrowers, much the same way an investment advisor needs to make sure the securities he puts Grandma's savings into are suitable for her. Given this standard, your bank is probably worried about being criticized for believing that you had $12k in cash and coins lying around. You might try giving the bank more detail about the source of your cash, and why it is perfectly reasonable for you to have it (e.g., "we stashed $50 per paycheck in the sock drawer so we could buy a house, and in 10 years we had $12k").
posted by A Long and Troublesome Lameness at 2:16 PM on July 21, 2008