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Bartender: Will Tips Hurt My Chances of Buying a Home?

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A reader recently asked us if cash deposits to a checking account could derail a mortgage. Kiersten wrote:

I am [a] bartender and I receive cash tips at the end of every shift and deposit that cash regularly. They said the cash deposits could not be considered a part of my deposit as I could ‘not explain them adequately’ . . .

If you haven’t taken out a mortgage lately, you may not know that lenders require an explanation for deposits that are not payroll checks or, say, income tax refunds. While some potential homebuyers may not be able to avoid cash deposits, some of us can — and, in fact, bankers say we should if we want a smooth approval and closing.

Scott Sheldon, a senior loan officer with Sonoma County Mortgages and a contributor to Credit.com, says lenders are required to look for suspicious activity, and only money that can be adequately “sourced” can be used in the mortgage transaction. “If you are self-employed and show cash deposits that’s OK . . . so long as you claim those monies as income on your tax return and you ‘show’ income from a filing standpoint.”

If you’re about to apply for a mortgage, and your parents or in-laws want to give you money as a housewarming/holiday gift, you will have to document and explain that deposited check. It might be easier to ask them to hold off until after your loan has closed.

Lenders are required to investigate deposits that have not been explained or documented. And having to explain and document can slow things down.

Sheldon recommends avoiding deposits that will have to be explained for a minimum of 60 days before you plan to close. After 60 days, the money becomes “seasoned,” and it won’t be questioned so long as the statement provided to the lender does not show multiple additional cash deposits going in after the initial deposit.

Among the reasons lenders are looking so carefully at deposits are potential money laundering activities, unacceptable sources of reserves and closing costs, and undisclosed debt (a cash deposit could have come from a cash advance on a credit card, for example).

But if you’re looking to apply for a mortgage in the next few months, think twice about putting a holiday gift check into your checking account. (It’s all the more reason to put gift cards on your wish list.)

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  • Candon Powell

    I read this blog all the time because it usually has good information that I can forward to my clients or realtor partners. I have a huge problem with this article; Will Tips Hurt My Chances Of Buying A Home? Where is the answer? And you never once addressed how to get the most out of a Bartenders income. The issue most Bartenders or Servers have is that they don’t claim most of their income because of tips. That is what hurts their chances. Not that it is in the form of tips, but because they choose not to claim it. It is essentially tax evasion and is fraud, which is why we can’t use the unclaimed income. Besides having a lower qualifying income, this can also throw up several red flags for fraud or money laundering that have to be overcome. Not making any cash deposits for 60 days is a good idea, but doesn’t address the lower qualifying income. As far as helping Bartenders, they need to think ahead and know the ramifications of how they handle their income.
    BARTENDERS: Claim your tips on your taxes to qualify for the highest possible qualifying income for 2 full calendar years. Yes you will pay more in taxes, but it is also considered tax evasion to do anything less. Now you have reduced chances of red flags and an increased chance of qualifying for the home you will want. What you choose to do with your income after that is all on you as the mortgage note is in place.

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