Weird Real Estate Situation with Buyers Cash- Ideas?

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panthermike

Joined
Apr 1, 2008
Messages
4,183
Location
Arizona
Hi all,

We are selling our house in Iowa and recently went under contract, but have hit a snag...

Buyer apparently has a large amount of cash(40K) that he's been saving over the years. Also, he buys/sells cars on the side. He went to deposit the money into his account to fund the down payment. Bank says we need proof of where the funds came from. Problem is, he really has no way of proving where it all came from.

This could cause the sale of the house to fall through.

Any way for him to get around this issue? He's tried a few banks and wrote a letter that didn't help, but that's all I know so far.
 
The concern is the lender thinks the buyer got "help" from parents or wherever doing an under-the-table loan/gift that doesn't properly reflect the buyer's income or means to pay off the loan.

He'd have been better making a series of small deposits as they came in.

If he's not marginally qualified he might be able to make this deal happen, but it sounds like he is marginal.
 
panthermike said:
Hi all,

We are selling our house in Iowa and recently went under contract, but have hit a snag...

Buyer apparently has a large amount of cash(40K) that he's been saving over the years. Also, he buys/sells cars on the side. He went to deposit the money into his account to fund the down payment. Bank says we need proof of where the funds came from. Problem is, he really has no way of proving where it all came from.

This could cause the sale of the house to fall through.

Any way for him to get around this issue? He's tried a few banks and wrote a letter that didn't help, but that's all I know so far.
Click to expand...
I'm a little confused.

When you say "bank says we need proof" are you talking about you or the prospective buyer of your house? For the moment I'm going to assume it's the buyer trying to find a bank to deposits the funds which he wants to use to buy your house.

No 1: 401k loan is self-evident. They either issue a check or wire the money directly into the account. He can provide a 401k statement showing the loan amount along with a copy of the loan terms. That's no big deal.
No 2: Large cash deposits - This is odd because essentially you're saying he doesn't already have a bank account. In any case he could provide a bill of sale and maybe a copy of the title showing car sold. Banks are under a lot of pressure via FINCEN to monitor for money laundering and some big banks have been hit with fines over the recent years which could make them overly suspicious. This is especially so if he's just using them just to move money to buy your house because he doesn't have a bank account.

Edit: Now if you're talking about the buyers lender here's the deal. On sale of personal assets the borrower must show proof of sale along with some third party documentation which supports the sales price (Ex, Autotrader listings). If he doesn't have that information then the cash amount cannot be included in the buyers funds for closing. Lenders require this documentation to "confirm" that the funds are not borrowed. Borrowed funds could negatively impact the buyers debt-to-income ratio making him/her ineligible for the loan. 401k loans are easy to document. Copy of the terms from the 401k administrator are usually sufficient where the lender can match the net proceeds with the deposit amount. A copy of the check doesn't hurt either.
 
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www.experian.com

Rules For Giving And Receiving Home Down Payment Gifts - Experian

Down payment gift rules vary by mortgage type. Here's what you need to know about giving and receiving home down payment gifts.
www.experian.com

^ May be a helpful read, although it won't help solve your buyers problem (or ultimately your problem). When we got our mortgage in 2011, the loan officer assigned was going down to small transaction amounts (small double digits and under) when they were validating our credit worthiness. It got very silly to say the least.
 
alarmguy said:
Something doesn’t make sense. Or the OP has typed it wrong.
You do not need to provide a bank an and explanation where funds came from to make a deposit.
Click to expand...

If you're using it for a down payment on a mortgage the lender will wan to source the funds to make sure it wasn't a loan that needs repaid.
 
as a lender they want to know where that money came from in case its a loan from family etc. if its a loan, then logically it would count against him as debt.

in many case, when parents give money to children to buy a home, they need to fill out a statement saying its a gift.
 
eljefino said:
The concern is the lender thinks the buyer got "help" from parents or wherever doing an under-the-table loan/gift that doesn't properly reflect the buyer's income or means to pay off the loan.

He'd have been better making a series of small deposits as they came in.

If he's not marginally qualified he might be able to make this deal happen, but it sounds like he is marginal.
Click to expand...
That's not a problem at all. In some cases all of the down payment can be a gift from family/domestic partner. The lenders concern is whether the funds are borrowed (repayment required) and the borrower won't qualify with the repayment amount.
 
BMWTurboDzl said:
I'm a little confused.

When you say "bank says we need proof" are you talking about you or the prospective buyer of your house? For the moment I'm going to assume it's the buyer trying to find a bank to deposits the funds which he wants to use to buy your house.

No 1: 401k loan is self-evident. They either issue a check or wire the money directly into the account. He can provide a 401k statement showing the loan amount along with a copy of the loan terms. That's no big deal.
No 2: Large cash deposits - This is odd because essentially you're saying he doesn't already have a bank account. In any case he could provide a bill of sale and maybe a copy of the title showing car sold. Banks are under a lot of pressure via FINCEN to monitor for money laundering and some big banks have been hit with fines over the recent years which could make them overly suspicious. This is especially so if he's just using them just to move money to buy your house because he doesn't have a bank account.

Edit: Now if you're talking about the buyers lender here's the deal. On sale of personal assets the borrower must show proof of sale along with some third party documentation which supports the sales price (Ex, Autotrader listings). If he doesn't have that information then the cash amount cannot be included in the buyers funds for closing. Lenders require this documentation to "confirm" that the funds are not borrowed. Borrowed funds could negatively impact the buyers debt-to-income ratio making him/her ineligible for the loan. 401k loans are easy to document. Copy of the terms from the 401k administrator are usually sufficient where the lender can match the net proceeds with the deposit amount. A copy of the check doesn't hurt either.
Click to expand...
Yes, buyers bank needs proof as to where he got the funds.

I'll pass along the 401K loan option.

Apparently he does have a bank account, but had money "stashed" away; reasons unknown.

I wouldn't be too interested in solutions normally, but we've had the house on the market for 9 months and this was the first actual prospect.
 
CarLuver said:
as a lender they want to know where that money came from in case its a loan from family etc. if its a loan, then logically it would count against him as debt.

in many case, when parents give money to children to buy a home, they need to fill out a statement saying its a gift.
Click to expand...
There is no lender involved. The buyer is saying the bank will not allow him to deposit the cash into his own personal account.
 
alarmguy said:
There is no mention of a lender in the OP which is why I said there is something wrong with that post. He is saying the bank will not accept his cash deposit into his own account.
Either the OP is typed wrong or the buyer is lying and doesn’t have the cash

Banks do not deny cash deposits into your own account
Click to expand...
No I was told into his own account. I believe any deposit over 9,999; the bank has to submit some form of paperwork. All the info I have is second hand which makes things difficult.
 
panthermike said:
Yes, buyers bank needs proof as to where he got the funds.

I'll pass along the 401K loan option.

Apparently he does have a bank account, but had money "stashed" away; reasons unknown.

I wouldn't be too interested in solutions normally, but we've had the house on the market for 9 months and this was the first actual prospect.
Click to expand...
Okay great. So we're talking about what's commonly called "Cash in Hand" or "mattress money". Have the buyer inquire about a "HomeReady loan" and he needs to start getting that money in an account ASAP. The borrower may not qualify and it will probably delay your closing and/or the lender may not allow it in general but it's worth a shot.
 
panthermike said:
No I was told into his own account. I believe any deposit over 9,999; the bank has to submit some form of paperwork. All the info I have is second hand which makes things
Click to expand...
Any deposit $10,000 or more automatically notifies the treasury department

Edit- to everyone, i corrected past statements, which I already deleted, the statement above is correct regarding the treasury department but also If you deposit large amounts of cash, your bank can ask you where the money came from and even require proof if it is something to them that is out of the ordinary.
 
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Clearly the solution here is for the buyer to bring the $40,000 in cash to closing and hand it to the buyer. The buyer can either deposit it into their account over time in smaller amounts, or attempt to all at once and when the bank asks, tell them that you just sold a house.
 
panthermike said:
No I was told into his own account. I believe any deposit over 9,999; the bank has to submit some form of paperwork. All the info I have is second hand which makes things difficult.
Click to expand...
anything over $10k is reported to the gov . but in most cases its just a formality as long as the money is not ill gotten and taxes have been paid on it . i once heard a guy tried to buy a $900k building with cash, but his income was around $50k a year. its situations like this that raise an eye brow, not some guy making $300k a year and plopping down $30k cash on a car.
.
i always tell folks the gov don't care what you do as long as they get their cut on taxes. also be real careful in making multiple deposits to skirt the $10k rule. many folks have been punished for doing this by the gov as conspiring to skirt the law
 
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