topic Re: Cash advance for earnest money?? in Mortgage Loans

Cash advance for earnest money??

smackmaster2 — Fri, 02 Sep 2011 00:41:13 GMT

We are trying to sell our current home and want to start construction on a new home. The builder wants $2500 in earnest money. All of our down payment money is tied up as equity in our current home. We would be applying for an FHA loan. We would have about $30k after closing costs etc have been paid for a down payment on the new house, which assuming an FHA loan, we really only need 3.5%, so on a $300k house is only about $10k.

Build times are about 4 months. If I were to take a cash advance out for our earnest money, and then reimburse that money to the CCs after we sell our current home, how does the LOs see that? Is this a no-no?

Re: Cash advance for earnest money??

BrianB_The_Loan_Professor — Fri, 02 Sep 2011 16:54:23 GMT

You cannot use that money for your down payment so it is a little gray - if you pay it off and replace the funds with cash from the sale you should be able to get around it - just another contingency on your loan -

Re: Cash advance for earnest money??

Lel — Fri, 02 Sep 2011 17:46:10 GMT

Brian, if the UW sees the $2500 deposit and asks for the source, would the fact that it came from a CC cash advance cause any problems? My gut tells me that it wouldn't be looked upon that favorably.

Re: Cash advance for earnest money??

BrianB_The_Loan_Professor — Fri, 02 Sep 2011 17:51:25 GMT

You are right maybe I didnt explain myself well - it will be questioned and they will need to explain what they are doing - They CANNOT use a loan for their down payment but they can pay that loan off or replace with their own funds prior to closing on the new house - obviously it would be easier if they could just use their own money and not have to do this. If they do not pay off the loan it would have to be counted against their debt ratios and they would still have to use their own funds to close the loan -

The earnest money is just a deposit with the contract - I have never had anyone do this but it seems like something that could be legally worked around.

Re: Cash advance for earnest money??

Walt_K — Sat, 03 Sep 2011 18:26:30 GMT

If you put all of your monthly bills and expenses on your CC and saved your cash, you could effectively get a cash advance that way. Not sure if that would get you all the way to $2500, depends on your bills, but you could at least take out less of a cash advance.

Not sure if doing it this way has any effect on the other issues, but I would think it would be more like carrying debt and less like taking a loan for your downpayment.