Financing in San Jose>Question Details

Patrick Lars…, Home Owner in 95110

Credit card cash advance and refinancing. Am I toast?

Asked by Patrick Larson, 95110 Sat Jun 30, 2012

Hi,

I am trying to refinance my mortgage.

Without realizing that this could frighten the lender, I took out a $5,000 cash advance from my credit card account. The money was deposited into my bank account on 6/12. This still pushed my "credit utilization" to around 39% (from 11% when the lender checked my credit score, 775 was the middle score). I have used the money from the cash advance to pay down the mortgage to the balance that the lender demands that gets the best rate (75% LTV).

Before the COE, which is scheduled to be 7/27, I will get enough money to pay off most of that cash advance ($5,000) and cover the closing cost.

Even though I am financially able to make the transaction, if the lender wants to take a look at my June bank statement (they already have March - May statement), they will see the cash advance. Am I totally toast? I heard that this could be the ground for getting my loan denied?!?!?

Any help would be great.

Thanks!

Patrick

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Answers

12
Patrick: Totally agree with John Juarez.
You will be required to provide your most recent bank statement and a new credit report will be just prior to funding of your loan. Both pieces are going to reveal this cash advance. You will need to go back to underwriting and qualify for the loan again with the new minimum payment on the credit card.
The money that you save before the close of escrow is legitmate for paying closing costs.
As you deposit these funds, make certain that you make copies of the checks that you are depositing. Bring the deposits into the bank and get a counter deposit receipt.
If any of these funds are for a repayment of debt, you will need to provide a copy of the original check that you wrote to make the loan.
If it is not a loan and it is a gift, you will need to provide gift documentation (gift letter, proof of funds from gift giver and copy of the cleard gift check).
You have created more paper trails to follow and explanations for your maneuvers, but you are not toast.
As always, lesson learned keep the lines of communication open with your lender.
I always tell my borrowers (especially first time homebuyers), don't make a move with your money without first checking with me. We can usually find a way to circumvent a problem before it becomes one.
You will be fine!! :)
0 votes Thank Flag Link Sun Jul 1, 2012
Patrick,

You have gotten some good input from mortgage professionals. However, have you reviewed your current situation with YOUR mortgage professional? Advice online is good but these are not the people who will be making the decision on your loan. I wonder why you did not discuss your plan to take a credit card advance with your lender before you took the advance. You might have avoided the feeling of distress that you are now experiencing.

Also, it appears that you do not currently have the cash necessary to pay your closing costs but will receive it before close of escrow. From where? Are you borrowing more money? Are you complicating your problem? I wonder why you took a cash advance on your credit card it you anticipated receiving this cash before closing from a “normal” source.
Come clean with your lender! Better to know your situation now than later.
0 votes Thank Flag Link Sun Jul 1, 2012
You should be OK they will just have to factor in the monthly payment on the $5,000 into your debt-to-income ratio.
0 votes Thank Flag Link Sat Jun 30, 2012
Denny has raised a very important point.

Was the cash advance made prior to application date or after the application.date?

To be on the safer side, I would recommend that you fill up the Form "Undisclosed Debt Acknowledgement"

Prima Facie I do not think there was an intent to commit fraud!! Anyway I am not an Attorney!!!

Jacob
NMLS 327086
Web Reference: http://www.swanloans.com/
0 votes Thank Flag Link Sat Jun 30, 2012
So Jason, are you suggesting they commit mortgage fraud? Are you suggesting they leave question "H" of the declarations; "is any part of the down payment borrowed" as is?
0 votes Thank Flag Link Sat Jun 30, 2012
The final decision is in the hands of the Underwriter and not the Loan Officer. Hence I wound wait for the Underwriter to come up with the findings. Based on the findings you can write a LOE.

Jaxob
Crtified Mortgage Coach
NMLS 327086
Web Reference: http://www.swanloans.com/
0 votes Thank Flag Link Sat Jun 30, 2012
What type of loan are you getting? If conforming, or FHA then probably yes, you are toast.

From Fannie Mae:

"Personal Unsecured Loans
Personal unsecured loans are not an acceptable source of funds for the down payment, closing
costs, or financial reserves.
Examples of personal unsecured loans include signature loans, lines of credit on credit cards, and
overdraft protection on checking accounts."

Paying down your balance on a refinance would be included in this as a prohibited practice since you are in effect borrowing the money. Simply recalculating the DTI is not going to cut it.

From HUD:

"Unacceptable borrowed funds include
• unsecured signature loans
• cash advances on credit cards
• borrowing against household goods and furniture, and
• other similar unsecured financing."

It's possible the underwriter may miss it, but I'd tell your loan officer if I were you and see what they suggest you do to fix this.
Web Reference: http://WeFixRates.Com
0 votes Thank Flag Link Sat Jun 30, 2012
Hi Patrick

Thanks for a detailed and thorough question. While, your credit utilization has jumped
From 11% to 39% on the card, the key issue is going to be what is your Debt to Income ratio.
The good thing is that the loan is not closing till the 27th., prior to which you will get paid to pay down
The cash withdrawal.

While you did withdraw $5000 from you credit card, there are factors to be considered, such as monthly payments and interest rate.
Also, the fact that you can pay down the $5000 before closing can be explained to the lender.

You can explain if asked that you borrowed to pay down the Mortgage and with the understanding that
The bulk of the $5000 would be paid off by you. The lender very likely will ask you for a Bank Statement closer to closing, so hopefully by then you will have been Paid to pay off the $5k.

I believe you should be in good shape provided you explain crisply, and can execute in paying down the bulk of the Cash withdrawal.

Good luck
Perry

Http://www.ruthandperry.com
0 votes Thank Flag Link Sat Jun 30, 2012
Am I toast?

In an answer,... quite possibly.
Your lender will ask where the money came from?
when you tell them simple a credit card it may be like putting raisin bran bread in the machine and pressing the lever down. Don't forget the butter.
You already know as you explained it in your question. However I could not resist,....

use sense of humor here....
Sometimes you get your mail and those credit card sales tactics they use, sound so incredible!
0% for 18 months ( I know if you read the back it says 3% or 4% instantly but who reads that? )
Just think if you have enough credit, you can cash advance you credit cards and pay off your house!
then if you fall on hard times you may be eligible for some sort of bankruptcy on the credit card and have a paid off house. I do not recommend it but I am sure if I thought of it, it has probably happened.

Harold Sharpe - Broker
So Cal Homes
(951) 821-8211
harold@socalhomes.biz
http://www.socalhomes.biz
California Department of Real Estate Broker License # 01312992
0 votes Thank Flag Link Sat Jun 30, 2012
The lender may check your DTI ratio. If your DTI ratio is still good inspite of the Cash Advance then I would not be much concerned. They may also ask for a paper trail.

Jacob
Certified Mortgage Coach
NMLS 327086
0 votes Thank Flag Link Sat Jun 30, 2012
Patrick:
It is all in the timing. Keep quiet. If your timing is right with regard to the bank's review of papers, it may slip under the radar. Otherwise, it might get denied. If it gets denied, you'll have to start over with a different bank. Not so bad though, rates are still low wherever you go. I work for a corespondent bank that funds directly as a teller window, for Wells Fargo, Chase, GMAC, Prudential, Stearns, and more, so we can certainly find you an alternative path. Do replenish your credit card as soon as you can.

More questions? Mitchell Pearce 408-639-0211 mitchell@handsonrealtor.com
0 votes Thank Flag Link Sat Jun 30, 2012
Hello Patrick,

Keep in mind, your lender will ask you for a paper trail of where the funds came from to buy down your mortgage. In some cases, your loan could be denied. But in reading your situation, your DTI is 39% which should be fine. Depending on the loan amount, if it goes above 45% then it could create a problem.

Most likely, you will be asked for a current credit card statement showing the cash advance and the new payment. You will have to be requalified with the new payment.

I would contact your loan officer right away to make sure the number still work. Additionally, before making any financial changes such as changing jobs, transferring funds, cash advances, applying for new credit or large purchases, contact your loan officer to see how this would affect the loan process.

I hope this helps.

Regards,
Michelle
0 votes Thank Flag Link Sat Jun 30, 2012
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