topic Re: Direct Deposit Advance in Mortgage Loans

Direct Deposit Advance

lpayton — Fri, 06 Jan 2012 16:54:18 GMT

Well, at first I was told that I would not need to provide bank statements, because I needed $0 at closing (seller paying all closing costs). I ended up needing to provide them anyway. Fine. So after a few days of my statements being in the hands of UW, I get a call from my LO asking me about direct deposit advances I use in my checking account (btw, I bank through Wells Fargo, and am applying for my mortgage through Wells too). I explained to her that I use the advance like a line of credit, and re-pay it ALWAYS. My credit cards are new, and have high interest rates, and charge crazy fees for cash advances, and they are really low limits...so it is more convenient and easier to just use the direct deposit advance. She stated she uses her credit cards the same way (takes cash advances for her groceries, etc)...but said that UW is concerned that I have a "budgeting" issue. I think this is ludicrous. They verified a FOUR YEAR positive rental history a few days earlier with the property management company, and they are worried about this??? A service THEY PROVIDE THAT I ALWAYS pay back??? I am beside myself!!! If they deny my loan because of utilizing a service that they provide, I will be leaving Wells Fargo bank, for good.

Another annoyance, is that this was Tuesday. The LO stated that she would know by the end of the day, or early Wednesday the status of my loan. Here it is Friday and no word yet. The over-promise, under-deliver thing is getting a little annoying. I am hoping maybe the UW just passed it on to her manager for final approval?

UGH. At this point, I almost want to be denied so I can just MOVE ON WITH MY LIFE!!!!!!!!!!!!!!!!!!!!!!!

Re: Direct Deposit Advance

lpayton — Fri, 06 Jan 2012 16:56:56 GMT

Oh, also need to add that I make $52,000/year, and literally have NO debt! ZERO! (other than my brand new $200 limit credit cards) My debt to income ratio is SUPER low....and my mortgage will be $140 higher than my current rent...and after tax write-offs, my mortgage will actually be cheaper. So, again, scratching my head over why this would be a problem.

Re: Direct Deposit Advance

Anonymous — Fri, 06 Jan 2012 17:48:20 GMT

IF there is ONE thing I have learned from this whole mortgage endeavor ( and let me say this is not my first mortgage, I probably have gone through 4 mortgage processes in my life with my current mortgage and anytime I have refianced it), that the UW can do whatever they like! You burp and it smells wrong they can flag it. That might sound harsh but the first UW I had didn't like that at one time on my land's life there was a corn crop....not that there was presently a corn crop but there used to be a corn crop. And she developed a cocka maney plan to go around what she "felt" about the corn crop.

SO could this cause a problem, yup...but maybe with just this particular UW. If everything else is great, you have chances of this not being an issue with other UW's. Since you bank with Wells and want them to do the mortgage, I would make it clear what they stand to lose if this little deal holds you up.

Re: Direct Deposit Advance

lpayton — Fri, 06 Jan 2012 17:58:14 GMT

Yes, underwriting does seem to have a mind of their own with regard to certain things. Just hoping they don't make a big fuss over this. Especially when everything else is perfect. Ugh. I'm SO sick of being on the fence and not having any control over my own future.

Re: Direct Deposit Advance

Anonymous — Fri, 06 Jan 2012 18:03:22 GMT

AMEN...and I feel your pain!

Re: Direct Deposit Advance

Anonymous — Fri, 06 Jan 2012 20:33:37 GMT

Sorry but this is not what you want to hear but I agree with the UW. Essentially you are using pay day loans. The way they look at it is you can not afford your current expenses on you income and therefore need a loan to make it paycheck to paycheck. Not to be harsh but maybe you should step back and rethink purchasing a home right now. If you can not make it from paycheck to paycheck without a loan living in a rental. What are you going to do when the furnace on your new home goes out or your water heater, etc? Unless purchasing the new home will make your mortgage payment less than your current rent and lower some other expense such as commuting costs or something; then I apoligize for my statement.

BTW taking cash advances on credit cards to purchase grocieries is NOT a good idea. using your credit card at the store to take advantage of a cash back deal or points deal then PIF at then end of the month can be smart BUT NO CASH ADVANCES. Cash advance on a credit card and Pay Day Loans just screams despiration.

Re: Direct Deposit Advance

lpayton — Fri, 06 Jan 2012 21:12:06 GMT

I have over $3,000 in savings, and almost NO DTI with a $52,000 a year salary. I am not in a "desperate" situation, at all. It is not a payday loan..Like I said, I use it as a line of supplemental credit, just like a credit card. I get excellent points with my Wells Fargo debit card, and utilize it for that reason. If I had known it was going to be an issue, I would have stopped using it a while back. Just never thought I would be punished for utilizing a service that THEY offer. And as far as your statement about "re-thinking" buying a house, maybe you should re-read the part about my outstanding 4 year long rental history. I am not asking for advice regarding my ability to pay my potential mortgage here, simply wondering if the utilization of the DD Advance is a kiss of death in anyone else's personal experience.

Also, regarding your statement of using cash advances on credit cards, again, you need to re-read the post. My loan officer stated that she used HER credit cards in that manner, not me.

Re: Direct Deposit Advance

DallasLoanGuy — Fri, 06 Jan 2012 21:21:04 GMT

reason # 5,281 why you don't go to a direct bank for a mortgage......

you get the same rate and fees going thru a mortgage banker or mortgage banker that sells to wells fargo.

Re: Direct Deposit Advance

SDChrgrboy2 — Fri, 06 Jan 2012 22:10:13 GMT

[i]I have over $3,000 in savings, and almost NO DTI with a $52,000 a year salary. I am not in a "desperate" situation, at all. It is not a payday loan..Like I said, I use it as a line of supplemental credit, just like a credit card. I get excellent points with my Wells Fargo debit card, and utilize it for that reason. If I had known it was going to be an issue, I would have stopped using it a while back.[/i]

I'm sorry, I agree with the previous poster, the direct deposit is not a line of credit and isn't advertised as one. Have you read the information on their website? Here are bits of it from there own website:

It is important to note the service is an expensive line of credit intended to assist with short-term borrowing needs and is not recommended as a solution for your long-term financial needs

Continuous Usage - If you have used the Direct Deposit Advance service for 6 or more consecutive statement periods, your advance credit limit may be reduced by $100 each statement period until your credit limit is zero ($0) for one statement period. The Advance Fee is a one-time transaction charge and is not dependent upon the length of time the advance is outstanding. For every $20 that is advanced, the Advance Fee is $1.50.

This is an expensive form of credit intended to meet short term and emergency borrowing needs.

Personal Line of Credit	13% APR	$3.79
Credit Card	20% APR, 4% Cash Advance Fee	$17.83
Direct Deposit Advance	Advance Fee: $1.50 per $20	$22.502

It would be cheaper to use a credit card than the advance.

So every time you use it your paying well over 22% interest. I know you say you want to earn points but the fees you are paying outweigh any points you are earning. And I am sorry but it is a payday loan. You are being advanced money ahead of your next direct deposit. Same process as a payday advance place. I have friends in several divisions of Wells including the home mortgage divivision, and we have actually discussed this. The UW will look at this to see why you need to advance yourself money before you get paid. . It is called a direct deposit advance, not direct deposit line of credit. Why dont you link your savings to your checking so the money is transferred automatically?

Re: Direct Deposit Advance

Anonymous — Fri, 06 Jan 2012 21:56:58 GMT

Sorry if I offended you. Maybe I am not clear on what exactly a "direct deposit advance" on checking/savings account that is used for a LOC is. It appears the UW is not either and jumped to the same conclusion I did.

Only you can be the judge of your financial situation and I was simply responding to what i read "I use the direct deposit LOC because my credit cards have huge fees for cash advances" I guess this is not exactly what you meant.

Again sorry to offended. Good luck to you hope you get it all worked out.

Re: Direct Deposit Advance

lpayton — Sat, 07 Jan 2012 00:11:53 GMT

I guess I have never considered it a "pay-day" loan, because I have never used it for that purpose, or for an emergency. Just as I said, as a supplemental line of credit.

I dont pay anything near 22% interest on it, it is a fee of $39 on a $500 advance. I have used it 3 times in the last 3 months, never consecutively over and over. Like I said, had I known it would have been an issue with UW, I wouldn't have used it.

Re: Direct Deposit Advance

Anonymous — Sat, 07 Jan 2012 02:35:34 GMT

My bank (US Bank) also offers the same type of 'line of credit'. I first applied with Quicken Loans and was pre-approved. I too have have decent salary (over $60k), good work history (over 15yrs at same employer), really good DTI (8%), and virtually no debt except for my car loan. As my loan went through underwriting, I was denied because I had used my checking account advance line of credit also. I didn't view it as a 'pay day loan' but I guess that is essentially what it is...and I had to accept that the lender has the right to view it as they wish. I went to another lender and they didn't have a problem with it at all. My advice is to just go to another lender.

Re: Direct Deposit Advance

Booner72 — Sat, 07 Jan 2012 06:32:31 GMT

lpayton.....Did you hear back from the LO? I hope so. Good Luck!

Re: Direct Deposit Advance

Anonymous — Sat, 07 Jan 2012 14:45:06 GMT

I hope OP got a good result!

Banks should be more honest about how some of their products are perceived. I get that they want to make a buck but full disclosure would help customers more in the long run.

Re: Direct Deposit Advance

Lel — Sat, 07 Jan 2012 17:21:58 GMT

@lpayton wrote:
I guess I have never considered it a "pay-day" loan, because I have never used it for that purpose, or for an emergency. Just as I said, as a supplemental line of credit.

I dont pay anything near 22% interest on it, it is a fee of $39 on a $500 advance. I have used it 3 times in the last 3 months, never consecutively over and over. Like I said, had I known it would have been an issue with UW, I wouldn't have used it.

lpayton, I'm sorry to hear of your struggles with WF regarding your home loan. But with that aside, I would suggest that you reconsider the use of this product, because it really is very expensive when you figure out the interest rate that you are effectively paying.

When you look at the APR of a credit card, keep in mind that it represents the interest rate of keeping a balance for a full year. So, if you carry a balance of $100 for a year on a card with a 25% interest rate, the balance at the end of the year would be around $125 (actually, a bit higher because the accrued interest would be added to the total balance at the end of the billing cycle). The interest that is applied to the CC balance is based on a daily periodic rate, which is calculated as such:

Daily periodic rate = Interest rate (APR) / 365 days

So, for a CC with an interest rate of 25%, the daily periodic = 25% / 365 = 0.068%.

The interest charges applied to a CC balance is calculated according to the following formula:

Interest charges = average daily balance x daily periodic rate x number of days in the billing cycle.

For your direct deposit advances, which is effectively a 1 month loan, the cost is $39. If we assume a 30 day billing cycle, you can calculate the daily period rate using the second formula. $39 is essentially the interest that you pay on a $500 direct deposit advance for one month.

$39 = $500 x daily periodic rate x 30 days

Daily periodic rate = 0.26%

Using this daily period rate, the net effective APR can be calculated using the first formula.

0.26% = APR / 365 days

APR = 0.26% x 365 days

APR = 94.9%

So, this a very expensive way of accessing funds. It's not as usurious as the rates charged by the payday loan centers, but still quite terrible. The fact that it's offered by a large multinational bank is disturbing to me. But they do state in their disclosures that this is an expensive product and should be used only for emergencies.

You mentioned earlier that you have $3000 in your savings account. I would suggest that you transfer money from savings to your debit card account and use that to pay your expenses, and then transfer money back into savings after you have a sufficient balance in your checking account to cover future debit card purchases.

BTW, you could also do a favor to your LO and tell her that her practice of taking cash advances on her CC to pay for groceries is also wasting money. CC cash advances typically incur a minimum transaction fee. Interest is charged from the moment that the advance is taken, without a grace period that applies to regular purchases. And cash advances often don't qualify for any rewards, such as cash back or points. She should just use the CC as a CC.