As we have previously shared, purchasing a home outright with cash doesn’t always make the most financial sense. Recently we have had some experiences with borrowers who have assets but do not have W-2 income, nor are they independent contractors or self-employed. For these clients who would prefer to finance their home purchase, this lack of traceable income can be a speed bump on the road to home ownership.
These clients take what they need for living expenses from their cash reserves as often as needed. While this would be the dream for many people, Fannie Mae is less impressed. Living from cash reserves presents a challenge to show established, consistent income that lenders can show proof of when we submit the loan.
What is trust income?
It may seem difficult to prove to Fannie Mae that you will be able to make those house payments on time, but it can be quite simple. By creating a trust and setting up monthly distributions from this trust we can quickly overcome this challenge. Once this has been set up, a 3rd party must verify those distributions have been established. They must ALSO verify that you have sufficient assets to make these distributions for a minimum of 36 months. These distributions are known as trust income and Fannie Mae looks favorably on trust income.
Making this even easier for the client is the fact that no long-term seasoning is required. Once the trust is set up and capitalized, the 3rd party administrator can establish those distributions. The trust can be just one month old.
As always, your personal circumstances will vary. Please do not hesitate to call or email us with any questions. We are always happy to help.