QUESTION: I'm buying my first home, but am about $1,000 short of having enough cash to close. Do I have to have all the funds together before I apply for the loan, or could I apply and then sell some things to generate the cash? - L.C.

ANSWER: What you're describing is what makes loan officers really earn their compensation. While it's not necessary to have all the cash you'll need at the time of loan application, you should have a good idea of where it's coming from since the lender will require documentation.

The following are acceptable ways to generate cash to close your mortgage loan:

Sell an item of durable value

This can be anything from a car, motorcycle, stamp collection or jewelry and should be documented by a sales receipt along with a copy of the payment (check, money order, etc.) to authenticate the sale. You could also use an asset to cover post-closing reserve requirements if a reputable dealer can authenticate, in writing, the asset's value. An insurance policy showing the value of the asset also is adequate verification.

Gifts

True gifts (those not requiring repayment) are an acceptable source of funds. With FNMA/FHLMC conventional loans, gifts from family members are allowed and the borrower must document that he has 5 percent of the sales price of his own funds invested in the transaction. If the down payment is 20 percent or more, this requirement does not apply. All conventional loan gifts require verification of the source, transfer and receipt of the gift. Ask the lender you're working with for their exact policies, since lenders require strict paper trails for gifts. If you're applying for an FHA or VA loan, there is no limit to the amount of the gift and it can be from anyone, provided there is no business relationship involved.

Rental/deposits

A frequently overlooked source of funds is any deposit you'll receive when vacating a rental unit. A letter from the landlord stating that a security deposit is due can substantiate the amount of money for underwriting purposes.

Side jobs

Another allowable source of extra funds is performing personal service jobs like lawn mowing, babysitting, painting and even selling arts and crafts. Since these are not subject to withholding taxes and are paid immediately, they can help absorb cash shortfalls. Even though they won't count as income, save receipts and check copies to show that the work was performed and payment received.

When the lender takes your loan application, make sure you chat with him about how you're planning to acquire more cash to close. A good loan officer can often see things in the application that can help you free up the cash you need and get your purchase closed in a timely manner.

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Julie Garton-Good is a Realtor, international speaker and syndicated columnist. Her e-mail address is jgg@juliegarton-good.com.