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Assets
When you apply for a home loan, we will evaluate your application in terms of your income, credit, collateral, and your assets or the cash involved in the sale of your home, as well as your cash reserves after the loan closes. While assets do not come up often in terms of qualifying for a mortgage, they are still very important.
We will want to verify the source of your down payment and closing costs, along with your other assets. You cannot just come up with the money for a mortgage; we want to know where your assets came from. If you can show that your funds came from a savings account, we will be more confident in you as a borrower.
You can expect to document the funds you use for your down payment, as well as any other reserves you have. This is important because you may need to rely on your assets if you experience a financial difficulty, and we will want to know that you have money set aside to pay the mortgage if you run into trouble.
What are Assets?
Assets that can be considered in your application by us include: retirement funds, stocks, mutual funds, bonds, life insurance policies, and an estimated value of property, like real estate or a boat. You can use these assets to qualify for a loan, even if you have limited income.
Assets include money used for:
- Your down payment
- Closing costs
- Prepaid costs like homeowners insurance and property taxes, or to establish an escrow account to pay these items in the future
- Reserves, or the money you have left after the loan closes
Lender Requirements for Assets
We will want to verify that you have enough money to cover your mortgage payments without help, and you will also need to demonstrate financial stability.
You should plan ahead before you apply for a loan because your assets must be "seasoned." This just means that large deposits and assets need to have been in your bank account for at least one month, and we must be able to verify where they came from and why.
Asset Documentation
You will need documentation of the paper trail for any money you use for your down payment and closing costs. By far, the easiest way to do this is with copies of your bank statements. If the money has remained in the bank account for the entire period covered by these statements, your assets will be seasoned. If your statements show an unusual or large deposit, we will ask for documentation of its source.
Keep in mind that you will need additional documentation if you use gift money for your down payment. Most lenders need the money donor to sign a gift letter that states your relationship, the address of the property that will be purchased, the amount of money given as a gift, and a statement saying the money is provided as a gift, not a loan.
Avoid Asset Problems
You may run into one of several problems during underwriting. Avoid these trouble areas:
- Do you have any large deposits that seem excessive for your income? The underwriter will wonder where the money is coming from and may assume you got a loan that is not on your credit report.
- Do you have too many cash deposits? We see cash deposits into your bank account as a red flag.
- Are you getting gift money or assistance from the seller? Be careful, as some lenders will be concerned about your ability to repay your mortgage.
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