Quick Tip #1 – Don’t borrow money to borrow money

With interest rates so low on secured and unsecured debt… it’s tempting for clients to borrow money from credit cards, lines of credit, or IRA loans in order to fund their earnest money escrow deposit and/or their full down payment for the purchase of a home.

Before you do this, PLEASE check with your lender.  Many loan programs do not allow for borrowed funds to be used as a down payment source.  Gift funds are usually OK… but funds cannot be borrowed.

Most recently I had a client who provided a copy of her earnest money deposit check.  The check had cleared her B of A account and the condition to prove the source of the money provided for deposit was resolved.  However, at closing, a 2nd level review found that the B of A check was actually drawn on an unsecured line of credit.  This in turn increased the client debt load and threatened to kill the deal.

Had the client checked with me prior to borrowing funds to fund her borrowed money, we could have resolved this issue up front.  Luckily the client had cash available to pay off the line of credit that the original deposit check was drawn against.  With some last minute maneuvering and a cooperative underwriter, we were able to get docs out in time to sign today.

In this instance, we got lucky.  However, as is so many times the case in this environment, communication and up front disclosure is key.