Kind of accounts for down payment

Down payments must be your very own blood, sweat, and tears. Lenders want your down payment to come from your own savings or checking accounts. Other people can’t make your down payment for you, though they can help by giving a gift. Otherwise it has to come from you. There are programs that require no down payment whatsoever, or loan programs that you let you borrow your down payment, but most every loan available will require some type of down payment, which needs to come from you or a family member.

First and foremost will be the money in your bank or savings accounts. Your lender will typically ask for account statements for the preceding three or more months to verify your funds to close the deal. Why three months? A lender wants to see a pattern or history of an account. If suddenly $20,000 pops into your bank account, the lender wants to know where it came from. Did you borrow it from someone else? Are you obligated to pay it back? By providing three or more months of statements the lender can determine that the funds you’ve saved came from you and you only. Some home buyers know this and are in fact advised by some loan officers to simply ‘‘put some money in the bank and call me back in three months,’’ assuming that the lender won’t care where the funds came from if in fact they’ve been in an account for that period. Quite true. It’s also quite true that lenders can ask for more than three months. They can mostly ask for whatever they want if they think they’re having the wool pulled over their eyes.

Your funds can come from your job, a bonus, your regular savings, selling something, or borrowing against an asset. Your paycheck can certify that you’re getting a certain amount each month and you can verify that it’s going into a bank account. Same with any bonus or commission income. It’s documented as you make it. Some people have assets they can sell for down payment money. Do you have a car you can sell? Artwork? Stocks? The key to selling an asset is first, you need to document the transaction, and second, the object sold must be an appraisable asset.

An appraisable asset is an item whose value can be determined by a third party expert. That car you want to sell? It’s an appraisable asset. Its value is independently appraised by a variety of automobile pricing schedules or even classified advertising. Do you have an expensive watch or heirloom jewelry? If the item can be appraised, in this instance by a gemologist or jeweler, and sold then you can use those funds to buy the house.

Another form of down payment can come from a ‘‘pledged asset.’’ A pledged asset is typically a stock or investment account that you can borrow against for a down payment. The stocks aren’t cashed in, you simply pledge the asset as collateral for down payment funds. If it can’t be appraised, the lender may not be able to use those funds for a down payment.

If you can’t document where your down payment money is coming from, many loans won’t allow for that. Lenders want to be absolutely certain that the money you used to buy the house is not borrowed from another source. Borrowing from another source will affect your debt ratios and your collateral. It also affects your equity in the property and increases the risk in the loan. That’s why people can’t take out cash from their credit cards for down payments. That money’s borrowed. Lenders want to see you save your down payment.

Wholesale Lenders Can Pay Brokers to Send Them Loans

Mortgage brokers don’t lend money; they find money. And they find money from a group of mortgage companies called wholesale lenders. Wholesale lenders don’t make loans to consumers directly. Instead, they make loan programs available to mortgage brokers, who in turn ‘‘mark up’’ the interest rate to the retail level. The difference between the wholesale rate and the marked-up rate is how much money the broker makes. It’s not unlike any other wholesale/retail consumer product: Buy low, sell high.

Brokers can make more money on your loan with something called a yield spread premium, or YSP. Each morning, all wholesale lenders publish their interest rates for that business day. And while most of these rates will be the same, there might be a difference in how much each interest rate ‘‘costs’’ the mortgage broker.

For example, a mortgage broker will begin comparing interest rates from various wholesale lenders. The forte of a mortgage broker is that the broker has the ability to ‘‘shop’’ for the best mortgage rate by comparing the hundreds of lenders that the broker is signed up with.
But what the broker may really be doing is not finding you the best rate but finding himself the most money.

A broker can peruse the daily wholesale rate offerings and find three lenders offering a 15-year fixed-rate mortgage at 5.50 percent. The difference is not the rate; the difference may be the YSP. Lender A might offer a 1.00 percent YSP, Lender B might be offering
a 1.375 percent YSP, while Lender C is offering only 0.875 percent that day, all on the very same 15-year fixed-rate mortgage program. Remember, it’s the YSP that typically goes to the mortgage broker as its profit. So which lender do you think the broker is going to choose? Lender B.

On a $400,000 loan, Lender A pays the broker $4,000, Lender B pays $5,500, while Lender C can muster only $3,500 that day. Lender B gets your loan because the broker makes more money from it while you get the rate you were promised.

Is that mortgage broker going to give you back some of that money? No. Should she? I don’t think so, but others may disagree. If you agreed to a 5.50 percent interest rate and your broker locked you in at that rate, then you got what you wanted. Of course, a mortgage broker who picks up a few extra bucks because she found a slightly better deal at one of her wholesale lenders could certainly offer to give you some of that ‘‘extra’’ money, but she is not obligated to. Compare it to a retail store. If the store can cut its costs on a product, it can pass along the savings to you, but it is not obligated to do that.

How to Establish Credit

If you don’t have any credit and you want to establish it, you’ll need to go a step further than using alternative-credit sources such as telephone and cable television bills. To establish credit, you need to buy something on credit, then make your payments on time, every time. That’s it.

But how can a person establish credit if no one will grant credit without a prior credit account? It’s true that there are certain credit accounts that require a traditional credit history, but there are a couple of places to get started with a credit account. The first place to begin is most likely at a department store. Many department stores offer credit accounts and are willing to issue credit to first-timers. Don’t expect a credit line in the stratosphere, though. Your first credit account is likely to have a credit limit of $250 to $500. Another option is to apply for a credit account from a gasoline company. They too may issue credit on a limited basis to those without a history. But if you’re having trouble or would rather not wonder whether or not you’re going to get a credit card, then go to your bank and open up a secured credit card account.

A secured credit card is just like any other credit card in that it has a credit limit and when you charge something on it, you have to make monthly payments to pay it off. However, instead of having an open credit line with no collateral, you ‘‘secure’’ the card with cash up front.
For a secured credit card, you will need to make a cash deposit of anywhere from $250 to $5,000, whatever you choose or the bank requires, into a collateral account. This cash deposit acts as a ‘‘backup’’ for the bank in case of default on your part.

If your deposit is $1,000, then your credit line will be $1,000. You will then be issued your first credit card, and it will look just like any other card. When you buy something on the card, you will get a statement in the mail each month showing the required minimum monthly
payment.

The minimum monthly payment is your contractual obligation to pay the bank back. If you charged $100, then your minimum monthly payment could be, say, $18.00. Your minimum monthly payment is a function of the interest rate attached to your card account.

You can pay the minimum, which includes the interest or finance charge, or you can pay a little more than that or you can pay the balance in full. It’s up to you, but you need to pay at least the minimum required on or before the due date.

Most card accounts give you 25 to 30 days to make a payment by the due date, although some cards ask for the money a lot sooner. Pay very close to that due date and don’t be late; if you are, you will be establishing bad credit.
Ithe late payments show up on your credit report, showing how many payments were more than 30 days past due, 60 days past due, and so on. Those notations are for credit-reporting purposes, and lenders use them as an accepted guideline when determining ‘‘good’’ or ‘‘not so good’’ credit.

Be warned, however: Even if a payment to a credit account is less than 30 days past the due date, if it is as little as one day past the due date, the credit issuer will most likely penalize you by increasing your interest rate to much a higher level. Pay the account before the due date and you won’t have those problems.

Most secured cards will return your cash deposit to you after 12 months of on-time payments and keep your credit line the same as the original amount. Continuous on-time payments and responsible credit usage will soon be rewarded with an increased credit limit (if that’s what you want, of course).

After you’ve opened up your first credit account, you may apply for another credit account after three to six months of use. Be careful though; just because credit is available to you doesn’t mean that using it is a good thing. Many a folk have gotten themselves into credit hot water, or worse, by opening up and using too many credit lines.

When you’ve established a track record with a credit account, you need to make certain that the lending institution is reporting your payment history to the credit bureaus. To find this out, simply ask about it while you’re applying for the credit account. If the institution doesn’t report, you may want to try another bank. Odds are that almost every bank will report your information, however. After all, they’re members, of the credit bureaus, too.