Cash and disclosure

December 31, 2013 8:06 AM

When we found out we would be moving we had a yard sale. We did really well! But we need that money to go towards our closing costs/ required reserves on our new home. How do we explain a cash deposit of this nature to our lender? We can't very well track down every random stranger that came by to purchase something. We can write a letter explaining where the money came from, but would that be good enough?

We haven't deposited the money yet. The lender wants to see that you have reserves after closing, and this certainly counts as part our reserves. Plus we want it in the bank in case there are added fees for closing that we didn't see coming and so we don't lose it.

posted by MayNicholas to Work & Money (20 answers total)

Why would your lender care? Christmas present, forgotten debt from old pal or you sold an heirloom.
posted by Ideefixe at 8:09 AM on December 31, 2013 [2 favorites]

Just saying it's from a yard sale should be sufficient.
posted by kavasa at 8:09 AM on December 31, 2013 [10 favorites]

There's no reason to lie, either.
posted by kavasa at 8:10 AM on December 31, 2013 [1 favorite]

Response by poster: Lenders care about EVERYTHING. You have to supply a gift letter for all gifts, even Christmas presents that are cash or checks. They have to to able to determine the source of all funds that deposited these days.
posted by MayNicholas at 8:13 AM on December 31, 2013

Lenders may care because they're on the lookout for other undeclared loans you might be receiving that would count as debt obligations. For example, if your parents are gifting you the money for a down payment, lenders will often want a letter from them stating that it's a gift and there is no obligation to pay it back.
posted by skycrashesdown at 8:14 AM on December 31, 2013 [2 favorites]

Coin jar.
posted by pompomtom at 8:15 AM on December 31, 2013

Also, call up and ask the lender. "Hey, we just had a yard sale and made $amount, anything special you'd like to know about it?"

Seriously do not lie.
posted by kavasa at 8:19 AM on December 31, 2013 [15 favorites]

Depending on the amount of money, an affidavit from you stating where the money came from may well be enough. I've had to write similar affidavits in the distant past when buying a home. Do you have someone you're working with at your lender? You really can just ask them. We had some complicated financial stuff going on when we bought the house we live in now, like a friend lending us $50,000 for the downpayment on the new house, to be paid back when the old house sold, and our lender was very happy to say, "Oh, that's what's going on? Well, the piece of paper I need will look like this...." (We had to create a promissory note stating that the money would be paid back.) You don't need to be sneaky, I don't think, about explaining it to the person you're working with, and that person wants the loan to go through and will let you know what documentation they need, if any.
posted by not that girl at 8:20 AM on December 31, 2013 [2 favorites]

kavasa said it shorter and better!
posted by not that girl at 8:21 AM on December 31, 2013

i wouldn't volunteer any information unless they ask specifically.
posted by bruce at 8:40 AM on December 31, 2013

Contrary to some posters above: this is actually a big deal. The consensus among the industry professionals I spoke with while purchasing my house last year is that the current documentation expectations from lenders and underwriters are INSANE. In my case, even though I had the good advice to not touch ANY accounts related to the closing funds within two months of my loan application, I slipped up and had to scramble to produce a gift letter for a$200 Christmas check from my mother. The closing costs were already accounted for, but it went into the same bank account...

Definitely speak with your lender for guidance on this, but be aware that you need to satisfy the underwriter, too, and the lender might not get their feedback until very late in the process. I doubt this would torpedo your loan application...but it could very possibly delay your loan approval and closing.

God getting a mortgage sucks.
posted by The Prawn Reproach at 8:45 AM on December 31, 2013 [2 favorites]

Ask your broker/realtor (assuming you're using one). They have likely seen everything and can give you read on what will be necessary. Eventually you will need to get a direct answer from your lender. If you're working with a mortgage broker, they can probably give you good candid advice about how to deal with this. If you're working directly with the actual lender, then call whoever it is who has been working with you most closely and ask just as kavasa suggests.
posted by that's candlepin at 8:48 AM on December 31, 2013

Just deposit it. You didn't state how much you made. It may not be significant enough for anybody to care. And if they care, put it in writing that it was the proceeds from a yard sale and that will be fine. Nobody is going to expect you to have receipts from 500 $2 sales that add up to the $1000 deposit.
posted by COD at 9:00 AM on December 31, 2013

My experience getting a mortgage is that, yes, you'll have to explain this formally in a letter (just like I had to explain a $75 check my mom wrote me to reimburse me when I was the point person for a larger birthday present for my brother, and a letter to explain the 3 month "gap" in my employment between two jobs WHEN I TEACH PUBLIC SCHOOL, and a letter about the $100 cash I deposited that my grandma gave me as a Christmas present and about 5 other things as a first-time buyer without excess reserves), but that I never heard about it again even though it was annoying at the time. I would just call your broker/lender and ask.
posted by charmedimsure at 9:44 AM on December 31, 2013

Keep a copy of the ad for the yard sale. If it was online, see if you can print out a screen shot. If in the paper, scan it. Deposit the money and if asked, send them the copy of the ad with the explanation that we sold our crap!
posted by JohnnyGunn at 10:03 AM on December 31, 2013 [1 favorite]

Can you just use the cash to pay your living expenses? Buy your groceries, gas, car payments, and such and move your own "legitimate" money into the reserve account? Or is there not enough time to accrue a couple of paychecks worth of savings?
posted by Jazz Hands at 10:08 AM on December 31, 2013 [1 favorite]

Response by poster: We are already living off of other cash we received for Christmas. This yard sale money wouldn't have come in to play until we found out we will owe more money than we thought on the sale of our old home. Those funds will eat in to our funds for the new house so we are trying to cover the difference.
Kind of panicking because I can't make heads or tails of what funds will will actually have to bring to the table for the new house. The GFE isn't very helpful because every time I add up the numbers listed they just don't total what they have in the total line. Waiting to hear back from our processor, but just trying to get thoughts ahead of time. As of now we are fine, but since the numbers don't add up I'm confused and worried we are underestimating.
posted by MayNicholas at 10:29 AM on December 31, 2013

Letter should be fine. They're not going to give you the third degree on it unless it's a huge sum.
posted by Slinga at 11:15 AM on December 31, 2013

My husband is a Realtor. (tm) He said IF they ask just tell them it was a yard sale.
posted by St. Alia of the Bunnies at 4:45 PM on December 31, 2013

Response by poster: Just wanted to update in case someone looks at this in the future. The yard sale cash can not be used for the house as reserves. Every penny would need to be accounted for- a bill of sale from every buyer. A letter of explanation will not be sufficient.
posted by MayNicholas at 4:51 AM on January 6, 2014