Secured loan proceeds

Funds derived from a loan secured by a personal property or real property owned by the borrower may be considered as acceptable liquid asset. Of course, these debts must be included in the applicant's debt-to-income (DTI) qualification ratio.

Unsecured personal loans (e.g., credit card cash advance, signature loans, personal loans, etc.) are normally not eligible for conforming loans. However, some non-conforming programs will allow unsecured loan funds.

Lenders are very concerned about potentially borrowed funds, because these would increase the borrower's liabilities and may disqualify the borrower's debt-to-income ratios. The borrower must explain events that may indicate borrowed down payment funds:

  • New account. A savings or checking account that was recently opened may indicate borrowed funds.
  • Sudden deposit. An existing account that suddenly contains a significantly higher than average balance may indicate the deposit of unacceptable funds.
  • New loans. A new loan may indicate that the applicant has borrowed money for the down payment. A more serious event may be if the lender sees several inquiries on the credit report indicating that the borrower is racking up debt. For example, if the borrower's credit report shows several inquiries by car dealerships, the lender will want to know if the borrower has just obtained a car loan.
  • Undocumented money. Due to verification difficulties, "cash on hand" and "mattress money" are not acceptable liquid assets with conforming loans; however, many nonconforming lenders will accept them.

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