Gift Funds, an Unsourced Cash Deposit, and a New Auto Loan
Purchase price is $485,000 with 95% LTV and a $460,750 loan. Borrower income is $9,800 per month; PITIA is $3,300; other debt is $920; DTI is 43.1%. She has $22,000 in checking, a $25,000 gift from her fiancé, and a $9,500 cash deposit made 45 days ago. The gift letter states no repayment. The fiancé’s bank statement shows the $25,000 came from a $28,000 cashier’s check deposited three days before the transfer, with no source shown. Closing is in 10 days. A re-pull five days before closing shows a new $14,000 auto loan with a $410 payment that was not on the application. The borrower says the vehicle is titled to her brother and he makes the payments; she co-signed ‘only to help him.’ Funds needed are $24,250 down plus $12,000 closing costs. She has no other assets.
1. Evaluate the gift and the $9,500 deposit. What can be used toward funds to close?
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A fiancé is generally an acceptable donor if the relationship is documented, and a gift letter with no repayment is required. But the donor’s source of funds must also be verified. The $28,000 cashier’s check deposited into the fiancé’s account three days before the transfer is a large deposit; without documentation of its source, the $25,000 gift is unverified and cannot be counted. The borrower’s $9,500 cash deposit is 97% of her monthly income, well above the common 50% threshold for sourcing large deposits, so it also must be sourced or excluded. Verified usable funds are therefore $22,000. Funds needed are $24,250 + $12,000 = $36,250, leaving a $14,250 shortfall. If the $9,500 is sourced, the shortfall drops to $4,750, but the gift is still needed. If the gift source cannot be documented, the file cannot close as submitted.
2. How should the new auto loan be treated in DTI? Does the brother’s payment matter?
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The borrower is a co-obligor on the note and the debt appears on her credit, so it is her legal obligation unless she is released. The brother’s payment is a reimbursement between family members, not a reduction of the debt; it may be documented as a compensating factor but cannot be used to exclude the obligation. Including the $410 payment gives total debt of $3,300 + $920 + $410 = $4,630 and DTI of $4,630 / $9,800 = 47.2%, above a 45% maximum. Excluding it gives 43.1%. A payoff with verified funds could cure the DTI, but the borrower’s verified funds are already short for closing, and using gift funds to pay off debt rather than to close may violate the gift’s intended use. A written release from the auto lender showing the brother as sole obligor would be the only clean way to exclude the debt.
3. What is your decision and what conditions would you impose?
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Suspend the file rather than approve as submitted. Conditions: document the fiancé relationship and obtain a complete donor bank statement showing the source of the $28,000 cashier’s check; source the $9,500 cash deposit with a copy of the deposit item and a credible explanation; re-run DTI with the auto loan included; obtain either a release removing the borrower from the auto note or verify a payoff from acceptable funds; and confirm no new debt before closing with a final credit re-pull. If the gift and deposit cannot be sourced, or if DTI remains above 45% with the auto loan, decline. Do not count the brother’s payments as income or as a debt offset.