Closing in 2 months - worried about having the cash (PMI, loan, interest rate)

[Mink&Monk]

Background to my situation:
My husband and I will be closing on a new construction home in about 2 months. We signed the contract and got approved for the loan through the builder's lending agency back in early spring. Due to my husband's credit score being only in the high 600's, we applied for the loan in my name only and were approved for a lower interest rate than with both of us on the loan (4.75% vs 5.25%). We planned to put 10% down and have a nice chunk of cash leftover to buy new furniture.

Then about a month into the deal we were told that the PMI company didn't want to insure the loan due to a change in the minimum debt-income ratio requirements. Because the loan is in my name only (a $340k mortgage on a $55k/year income) my debt-income ratio was then considered too high. We'd already paid off all credit cards, cars, and student loans last year in preparation for buying this house, so there was no way to improve my debt-income ratio any further. The lender presented us with a few options to get us back within the acceptable range 1) add my husband back to the loan and accept the higher rate, 2) go with an FHA loan and incur a $5k funding fee, 3) get rid of some of our upgrades to lower the mortgaged amount, or 4) bring 14% to closing instead of 10% to lower the mortgaged amount.

We chose to suck it up and try to bring the extra 4% to closing, which amounts to about $16k extra. We were doing great on our savings up until June, then things started to go haywire at my husband's job. He's both salaried ($45k/year) and on a monthly bonus (on average another $45k/year). His June bonus was practically nothing, and July and August are looking questionable due to a variety of factors. Now that we're only 2 months away from closing, I think we're going to come up a few thousand short. Worst case scenario - we have to borrow about $4k from a family member a few days before closing, which we will promptly pay back as soon as we get the next paycheck.

Primary concern - the lender sent us a letter saying they "may" want proof that we have the money in the bank about 30 days before closing. This is just plain not going to happen, even if we don't need to borrow the $4k to bring to closing. We won't have it 30 days before, but we'll certainly have that $ prior to closing in September because we'll be getting paid multiple times in August. If we just go ahead and tell our lender that 30 days prior is impossible, will they have a huge problem with it?

It's not like we're biting off more than we can chew with this mortgage. We collectively earn over 6 figures, have no consumer debt, and are very responsible with our bills. We chose a modest floor plan and budgeted for our upgrades very carefully. We're expecting a baby in January and the last thing we want is to be forced to take the higher interest rate just because my husband was naive enough to get involved with a credit counseling agency years ago. He thought he was doing a smart thing that would allow him to pay off his debt faster, but it ended up ruining his credit. I don't think it's fair for us to be penalized for that mistake in the form of a higher rate.

Should I be worried about this situation? I'm afraid that the lender won't be flexible with us at all. It's just a timing issue, really.

[redbean]

The higher interest rate will cost you about $103 a month, or $37,080 over the life of the loan. That makes the FHA fee look good by comparison, so I would go that way if you have to, and can get the same interest rate. But wouldn't they require that fee at closing?

I'd try to borrow it from a trusted friend or relative. Sign a short-term promissory note to make them feel better about the deal. Then pay them back after the closing. Don't forget about the first-time buyer's tax credit, if you can qualify for it.

[suzie02]

Originally Posted by Mink&Monk

we applied for the loan in my name only and were approved for a lower interest rate than with both of us on the loan (4.75% vs 5.25%). We planned to put 10% down and have a nice chunk of cash leftover to buy new furniture.

That is a great interest rate. If you apply elsewhere right now you will not even get the 5.25%.
Talk to the builder. They want to close the deal as badly as you do. Maybe they can pay for a point in your behalf to lower the rate with both incomes included.

[southern by choice]

If, like you said, you can borrow the 4k from family, then borrow it right now and deposit it, and "season" it. This way its sitting there for more than the 30 days, and if you have to prove it, you can. In the meantime, keep putting money away. When you close, pay back the relative with interest included, for holding on to the money for the 60+ days.

[Mjames]

You're still 2 months from closing, so have you locked your interest rate? If you have not locked, that 4.75% rate may be gone.

Also, when I closed on my loan about a year ago, I had to provide bank statements showing where my down payment came from. If you borrow 4K from family and just deposit it, you will probably need to provide an explanation (i.e. gift letter from family member).

Good Luck!

[drshang]

Have you considered a 401k loan? You can borrow money from your 401k for 1-5 year period and just pay it back as soon as you get the money. Best off you're paying interest to yourself and you can use that money as proof of funds if the bank asks.

[Espressoo]

If you're buying a new construction home, didn't they require you to put a deposit down before they started building? I would think it's somewhere where in the range of 10% or higher. Is this 14% in addition to that deposit?

[Uconn97]

I would just borrow it ASAP from a trusted relative and deposit it. They may ask for a letter so make sure the relative is willing to sign off on that.