A house is a significant investment. To make the buying process more manageable, most people make an initial down payment, such as 20% of the property’s total sale price, and then pay the rest over time through a mortgage. If you have cash on hand, this might seem like the perfect way to spend it. However, this situation can result in major complications, and mortgage lenders do not recommend it. Find out more below.
Mortgage Lenders & the "Own Funds" Requirement
When you make your down payment, do so with "own funds." Mortgage lenders require this because it helps protect them; if you have a stake in the property yourself, you are less likely to default on future payments. With cash, it's considerably difficult to show where you got the money. For example, it could be borrowed or a gift.
The worst-case scenario is that the money is from illegal sources. This situation will raise a whole new set of problems as financial institutions must comply with the USA Patriot Act. This legislation was passed after the 9/11 attacks and requires financial institutions to report suspicion of money laundering—such as the use of physical cash to make major purchases.
How to Fund Your Mortgage
Instead of using cash, use certified funds, or a check. As for what to do with your liquidity, put it towards day-to-day elements like gas and groceries. These aspects of everyday life might otherwise impact your ability to pay your mortgage. If you have the cash to spend, allocate it carefully to avoid defaulting on payments and ruining your credit.
For advice regarding your mortgage needs in O’Fallon, MO, look to Dan Main. With over 20 years of experience in the home loan business, Dan has helped countless individuals and families secure their dream home. He will take the time to explain the details of your mortgage and interest rates to you in clear language that you understand. Visit his website for a look at the mortgage programs offered. For an appointment, call (636) 284-4144.
Dan Main: NMLS # 502036
Flat Branch Home Loans NMLS # 224149
947 Waterbury Falls Dr
O’Fallon, MO 63368
This is for informational purposes only and not an offer to lend or extend credit.