It’s hard for me to believe sometimes but there are plenty of people who live strictly in the cash economy. There is nothing wrong with this and often times saves you from much heartache. However, when you need to make a large purchase like a home things can get a bit complicated. In fact it is very difficult to extend a loan to someone who has been largely operating outside the mainstream banking system. Despite the difficulty, you need not despair, there are plenty of ways to obtain a mortgage and still stay “cash-only”.
Many loan programs offer what is known as “traditional credit” to replace a credit report. Traditional credit requires rigorous documentation and much effort from the borrowers part. To establish traditional credit the borrower will be required to furnish proof of good standing with four different creditors. Monthly rent paid is automatically counted as one of the four, in essence only three more are required. These three creditors can be utility companies, telephone companies, and any other installment type credit programs.
In many instances the lender will require a letter from these creditor companies attesting that there has been no late payment in the most recent twelve months. In some instances a lender may accept copies of twelve monthly statements as proof of good standing.
For those receiving income strictly on a cash basis I would suggest opening a bank account. Then, on pay day deposit the full amount into this account. If you are paid daily then wait until Friday to make a full deposit. It is best to deposit the entire amount and not withhold cash at the time of deposit. Remember that you are trying to demonstrate a stable regular deposit over twelve months, so try not to deviate. A cyclical, stable deposit allows lenders to verify your monthly income with a certain degree of accuracy. This in turn helps your case for obtaining a home.
Another category of “cash-only†folks includes those who do not have direct deposit for their paycheck into their account. For these folks I recommend making a full deposit of the check into the account on the day it is received. Do not take $50 out during the time of transaction; record the $50 withdrawal as a second transaction if you must. This way when lenders calculate monthly income you will be given full credit for the income.
Finally, when operating under a cash basis it is important to save receipts. So if you pay rent with a money order or cahiers check save the receipts for the most recent 12 months. Of course once you’ve obtained a mortgage you close your bank account and go back to your old method, but hopefully by then you’ll have realized that joining the system can save you a lot of work and may not be as bad as you thought!