Using OPM As A Down Payment

[Liam Galbraith]

Hi BP Members,

I have a passive investor lined up to provide the down payment on an investment property. I will find and manage the deal, and take out the mortgage under my name, and receive a portion of the profits for doing so. However I'm stuck on how to use my investor's money while taking out the mortgage under my name. This will be through a conventional mortgage for a residential building (a duplex). Any tips on how to proceed? Do I just need to place my investor's money in a bank account and let season for 60 days? Thank you!

[David M.]

@Liam Galbraith

Pretty much...  For a conforming loan, they will need two bank statements, hence the 60+ days, showing that the funds are there and you don't have any other large/unexplained deposits withdrawals.

Depending your arrangement with your investor, you might create a bank account under your name but include the investor as a signatory.  Since its only under your name, it won't draw attention to underwriting.  Your investor as a signatory will be able to take his/her funds out at will, so you aren't "holding the funds hostage."  Just an idea...

The "other" way is just declare to your lender that your "friend" is going to gift you the funds.  He or she will have to sign some paperwork, and potentially have to worry about the IRS and gift tax...  Not ideal, but it would avoid your investor having to send you the funds upfront, 2+ months before you start looking for a property (or perhaps less depending on how much your lender "plays ball").

Good luck.