Setting the Stage for a Real Estate Buy
There are subtleties to purchasing real estate, and obtaining a mortgage, that I was blissfully unaware of. Some of these subtleties put a monkey wrench in immediate plans I had to procure another house and rental property. Namely, in what I imagine is an effort to reduce money laundering, all of the income on your bank statement has to be traceable for 60 days prior to approval. This translates to me that I can't make cash deposits in excess of totaling $1000, 60 days from approval without throwing a red flag and getting my mortgage loan application rejected. Traceable can mean many things, but it pretty much boils down to proof that you sold an asset, or income from an employer.
I flip cars, and once in a while part them out. These transactions are done in cash 99.99% of the time. Any funds that I procure through these means are null and void if I put them into my bank account for the purposes of applying for a mortgage. There are a few ways to circumvent this, although I haven't tested them explicitly:
1.) Have a close friend or family member "gift" you the funds that you have in cash. This person would need to be especially close to you and comfortable handing over personal financial information to your lender, as they do the same checks on their account as they would on yours. Once everything is hunkey dorey and you've closed, you can pay them back with the cash you had all along. There may be tax subtleties to this that make it a bad option, such as needing to claim the gift as income and taking a double-ding on your heard earned money. Worth investigating further if you find yourself in my situation.
2.) Obtain a notarized bill of sale if you sell a vehicle, and the transaction must take place with a cashiers check (no cash). If I sell a car and intend to put those funds toward the account, this is the official process that the lender recommended I follow. The problem is that the clientele I deal with (low end cheap cars) rarely would be willing to do something like that. Cash is king and makes everything easier. No one feels like they are getting scammed when you deal with cash. I might be wary of a person selling me a $1500 car that refused to deal in United States Legal Tender and insisted on a check.
3.) Just wait it out. If you deposit the funds in your account, you can just sit on them until the clock has finished its 60 day timer, then reapply with new account histories submitted. They don't even look at account history more than 60 days old (unless you voluntarily give them more than they ask for) so this is probably the best option and the one I will likely go with. The caveat here is that I am stuck to a timetable while parting out cars. Since that is generally trickle income, I might sell a small part here and there to the tune of $50-200 per week, but then have one week where I sell the engine or transmission and make several thousand dollars. I ultimately need to wait until I have sold most of the money making or major components before I make the deposit, then I have to wait an additional 60 days, without any cash deposits while I watch the market and find prospects of homes I am not yet approved to purchase.
Then, once you have been preapproved, you still can't deposit funds until you've closed on the home you intend to buy. There is undoubtedly another final review of account history before everything is finalized, and once again you could risk getting rejected if you put a cash deposit larger than the threshold.
I understand this is a bit of a niche situation that maybe not a lot of others will find themselves in, but if you follow the blog and have taken our advice and started a side hustle, you may find yourself with increasing amounts of cash in the amounts where it could impact you in a situation such as this! Be aware of it so if you're shopping around and find the perfect place you don't get rejected due to a technicality that could so easily be avoided.