Tandas and savings clubs: how they count for your mortgage

Many families save in tandas or cundinas, with relatives, friends or coworkers. This guide is for anyone who wants to use that money to buy a home: it explains how the FHA and Fannie Mae rules see it, which papers to keep from your very first payment and what happens if you are still paying your share when you apply for the loan.

Of your monthly income; a single deposit larger than that is "large" and must be documented

50%³

Of bank statements the lender usually reviews on a purchase

2 months⁴

In cash; deposit more and the bank files a routine report

$10,000⁹

What a tanda is to a lender

In a tanda or cundina, each person pays in an amount and, taking turns, each one receives the pot. Lenders do not use the word “tanda,” but the rules do cover it. FHA calls it a private savings clubprivate savings clubA private savings club is, under FHA rules, a nontraditional way of saving in which members deposit money into a pool they manage themselves. On an FHA loan, the lender may accept money the club paid out to you as a source of funds if it verifies when the club was set up and how long it has run, that you received the money and that it was reasonably accumulated and not borrowed. To do that, it asks for the club's ledgers and receipts and a statement from the club treasurer that the club is still active. If you still have to keep contributing to the club, that payment counts as a debt.See the full definitionClose: a non-traditional way of saving by making deposits into a pool that the members manage themselves.¹ Fannie Mae, which sets the rules for many conventional loans, talks about “pooled savings” or “community savings funds.”²

Why all the questions? Because the lender has to know where every dollar comes from. On an FHA loanFHA loanAn FHA loan is a mortgage made by a private lender and insured by the Federal Housing Administration (FHA), an agency of the U.S. government. That insurance protects the lender if you stop paying, which is why the lender can accept a lower down payment and a less-than-perfect credit history than on a conventional loan. Federal law sets the minimum cash investment at 3.5% of the property's value and caps the loan amount at the FHA limit, which changes by county. In exchange for the insurance you pay a mortgage insurance premium.See the full definitionClose, it may only count assets from acceptable sources, and it must document all the money you use to qualify or to close.¹ Regulation Z, a federal rule, also requires the lender to verify the money it relies on with reasonably reliable third-party records, such as your bank’s.⁷ A tanda runs on trust and your word; a mortgage runs on paperwork. This guide helps you connect the two.

What FHA says about savings clubs

HUD Handbook 4000.1, which holds the rules for FHA loans, deals with savings clubs in two places: as a source of money and as a debt.

As a source of money. The lender may accept money the club paid out to you and that you received. To do so, it must verify when the club was set up and how long it has run, and that you actually received the money. It must also decide that the money was reasonably accumulated and is not borrowed. The papers it asks for are three: the club’s account ledgers, its receipts and a statement from the club treasurer that the club is still active.¹

As a debt. If you still have to keep paying in when you apply, that commitment is added to your total debt. The lender must document how long you have been a member and how much you are required to pay in.¹

Remember that with FHA your minimum contribution, the Minimum Required Investment, is at least 3.5% of the home’s value, in cash or its equivalent.¹ Your turn from the tanda can be part of that money if it meets the rules above.

What Fannie Mae says (conventional loans)

For a conventional loanconventional loanA conventional loan is any mortgage that is not insured or guaranteed by the federal government: it is not FHA, VA or USDA. The lender, or the companies that buy the loans (Fannie Mae and Freddie Mac), carry the risk. When the amount is within the conforming loan limit the loan is called "conforming"; above it, it is a "jumbo" loan. It usually asks for a higher credit score than an FHA loan and, if your down payment is less than 20% of the price, you are normally required to buy private mortgage insurance (PMI) until you build enough equity in the home.See the full definitionClose that follows Fannie Mae’s rules, money from pooled savings can be used for the down paymentdown paymentThe down payment is the part of the home's price you pay out of your own pocket when you buy; the loan covers the rest. In U.S. Spanish it is also called enganche, cuota inicial or entrada. Each loan type has its own minimum: FHA requires at least 3.5% of the value, VA and USDA loans may require none, and conventional loans ask for more if you want to avoid private mortgage insurance. A larger down payment lowers the loan, the monthly payment and the total interest; many state programs help families put it together.See the full definitionClose if you document your regular contributions. Acceptable papers are written confirmation from whoever manages the fund and proof that you paid in regularly. And if you have to keep paying in, that payment counts as debt when your debt-to-income ratiodebt-to-income ratio (DTI)Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income, that is, income before taxes. If you pay a certain amount each month across a car, cards, student loans and the mortgage you are asking for, and you earn three times that, your DTI is one third. Lenders use it to measure whether you can manage the payment; each loan type and lender sets its own limit, and assistance programs usually publish theirs. Paying down debt before applying improves your DTI.See the full definitionClose is calculated.²

Fannie Mae is also clear about what cannot be proven: unverified money does not count toward the down payment, closing costsclosing costsClosing costs are all of the costs you pay on closing day on top of the down payment: lender fees, the appraisal, the credit report, title insurance, the closing agent's fees, any transfer taxes your state or county charges and the first deposits into the escrow account. The lender must itemize them on the Loan Estimate within days of your application and confirm them on the Closing Disclosure before you sign. Some can be paid by the seller, and several state programs help cover them.See the full definitionClose or reservesreservesReserves are the cash and other easy-to-cash assets you still have available after the mortgage closes. They are measured in months: how many full monthly house payments (principal, interest, taxes, insurance and association dues) you could cover with them. Under Fannie Mae's rules, they include money in checking or savings accounts, investments, the vested part of a retirement account and the cash value of a life insurance policy; personal loans and the money you use to close do not count. An eligible gift can also be used. How many months are required depends on the loan and the property.See the full definitionClose, and the lender must investigate any sign of borrowed money.³

FHA and Fannie Mae, side by side

Private savings club

FHA

• Accepts money the club paid out to you and that you received.¹
• Verifies when the club started, how long it has run and that the money is not borrowed.¹
• Asks for the club's ledgers and receipts and a statement from the treasurer.¹
• If you keep paying in, that payment counts in your total debt.¹

Pooled savings

Fannie Mae

• Accepts pooled savings for the down payment.²
• Asks you to document your regular contributions.²
• Asks for written confirmation from whoever manages the fund.²
• If you keep paying in, that payment counts in your debt-to-income ratio.²

Either way, paperwork decides it: money that cannot be verified does not count.³

If your loan is neither FHA nor follows Fannie Mae’s rules, ask your lender in writing which documents it accepts: the CFPB points out that requirements vary from lender to lender.⁸

When your turn comes: from cash to the bank

Many tandas pay out in cash. That money, kept at home, is what the rules call “cash on hand,” and it has its own rules.

With FHA, cash on hand must be deposited in a financial institution or held by the escrow or title company. The lender will ask you to explain how you saved the money and over what period, and will check whether that is reasonable given your income, your spending and your history with banks.¹ With Fannie Mae, cash on hand does not count toward the down payment or closing costs, except with its HomeReady loan.⁵ With HomeReady, the money must be in an account when you apply or at least 30 days before closing, and you must state in writing where it came from and that it was not borrowed.⁶

A tanda payout is usually a large deposit. For FHA, the lender must document any deposit of more than 50% of your monthly income and check that it fits your income and savings.¹ For Fannie Mae, a large deposit is a single one over 50% of your monthly income; on a purchase you have to document that it comes from an acceptable source, and any part that is not documented is subtracted from your funds.³ This is where your tanda papers earn their keep: they explain that deposit.

On a purchase, the bank statements the lender reviews cover the most recent two months.⁴ The CFPB suggests having documentation of where your down payment came from with at least two months of history.⁸ Depositing early leaves a clear trail.

What if it is a lot of cash? If you deposit more than $10,000 in cash in one day, the bank files a Currency Transaction Report (CTR). According to FinCEN, there is no general prohibition against handling large amounts of cash, and the report is filed regardless of the reason. What is a crime is splitting the deposit into smaller amounts to avoid the report.⁹ Once it is in the bank, if the bank fails, FDIC insurance protects deposits at insured banks to at least $250,000 per depositor and category; a safe deposit box is not covered.¹⁰

The guide on cash savings and your mortgage goes deeper into depositing cash savings. If you do not have an account, see how to open a bank account without a Social Security number.

If you are still paying in: the tanda as a debt

A tanda does not end the day you get your turn. If your turn came early, you still owe your payments for the remaining turns. To the lender, that is a payment you have to make every month.

That is why FHA says the obligation to keep paying in counts in your total debt,¹ and Fannie Mae says it counts when calculating your debt-to-income ratio, the share of your income that goes to debts.² Regulation Z also requires the lender to consider your current debts when deciding whether you can repay.⁷

This can lower the loan you qualify for. The debt-to-income ratio guide explains how it is calculated, and the how much house can I afford tool lets you try your own numbers, adding your tanda payment as one more monthly payment.

How much to save: your tanda’s goal

A tanda can be a good way to build a down payment, because it makes you save every week or every month. Before deciding how much to pay in, look at how much you need.

Example with real numbers

The money to close on a typical home

With the typical US home value, an FHA loan with the minimum down payment and Freddie Mac's closing cost range.

Home price (typical US value)

$332,700

FHA minimum down payment (3.5%)

$11,645

Closing costs (2% to 5% of the price)

$6,654 to $16,635

Cash to close, before credits

$18,299 to $28,280

This is an example with national numbers.¹¹¹ Your tanda turn can be part of this money if you document it. Work out your own goal with your own numbers.

Run it with your numbersDown payment savings plan

The guide how much down payment you need compares the minimums for each loan. If the money comes from a relative and not from the tanda, it is a gift, and gifts have other rules: the gift money from family guide explains the gift letter.

Your tanda paperwork, step by step

From your first payment to closing

1. 1. Write down every payment

   From the first one

   Date, amount and who you paid. Fannie Mae asks you to document your regular contributions.²

2. 2. Get receipts, or pay in a way that leaves a record

   Every turn

   FHA asks for the club's account ledgers and receipts.¹

3. 3. Deposit your turn into your account

   The day you receive it, or as soon as you can

   With FHA, cash must be in a financial institution or held by the escrow or title company.¹

4. 4. Ask whoever runs the tanda for a statement

   Before you apply for the loan

   FHA asks for a statement from the treasurer that the club is still active; Fannie Mae, written confirmation from whoever manages the fund.¹

5. 5. Explain the large deposit

   When the lender asks

   If it is over 50% of your monthly income, it must be documented; your written explanation is one example of acceptable documentation.³

6. 6. Hand in complete bank statements

   When you apply and each time you update your file

   On a purchase they cover the most recent two months; the CFPB warns that incomplete documents may be rejected.⁸

   Try it with your numbersDocument checklist

The document checklist helps you gather the rest of the papers for your application, including your bank statementsbank statementA bank statement is the summary your bank or credit union gives you of the activity in your account over a period: deposits, withdrawals, payments and the ending balance. Most send one every month, on paper or online; the law only requires a monthly statement when there was at least one electronic transfer that month, and otherwise it may come quarterly. When you apply for a mortgage, the lender can use your statements to verify you have money for the down payment, closing and reserves. Under Fannie Mae's rules, they must show the bank's name, your name, part of the account number, the period, all transactions and the ending balance.See the full definitionClose.

If this is you

You are paid in cash

The lender will check whether what you saved is reasonable given your income and spending.¹ The guide on cash savings and your mortgage explains how your income counts.

You do not have a Social Security number

The rule about documenting your money is the same.³ The ITIN mortgage guide explains who lends and how.

Your income is limited

A HUD-approved housing counselor can go over your numbers and options with you, often for free or at low cost.¹² If you keep your turn in cash, remember that Fannie Mae only accepts cash on hand with HomeReady, with conditions.⁵⁶

You are buying for the first time

Gather your tanda papers now, before you start house hunting: the CFPB recommends preparing your application file early.⁸

Mistakes that can cost you the loan

• Mistake: Keeping your turn's money at home until closing.

  Instead: Deposit it: FHA wants it in a bank or with the title company, and Fannie Mae only accepts cash on hand with HomeReady.¹⁵

• Mistake: Keeping no record of your payments.

  Instead: Keep proof from the first payment on: FHA and Fannie Mae both ask for it.¹²

• Mistake: Not mentioning that you are still paying into the tanda.

  Instead: Put it on your application: that payment counts as debt.¹²

• Mistake: Splitting your turn's deposit into several smaller ones.

  Instead: Deposit it normally: the bank's report is routine, and splitting it to avoid the report is a crime.⁹

• Mistake: Topping up the down payment with borrowed money without saying so.

  Instead: FHA verifies that the money is not borrowed and Fannie Mae investigates any sign of a loan.¹³

What to do this week

1. List your payments into the tanda, with dates and amounts, and gather whatever proof you have.²
2. Talk to whoever runs the tanda and ask whether they can sign a statement: when it started, how much you pay in and that it is still active.¹
3. If you already received your turn in cash, deposit it into your account, all at once and without splitting it.¹⁹
4. Go through your last two months of bank statements and write down the explanation for each large deposit.³
5. If you are still paying in, work out how much you pay each month and how many turns are left, so you can tell the lender.¹
6. If you want help putting your plan together, a HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose gives independent advice, often for free or at low cost. Find one through the guide to HUD-approved housing counselors.¹²