A mortgage lender considers many factors while evaluating your application, including collateral (appraised value of the home), credit score (willingness to repay), income (ability to repay) and your assets, which is the cash involved in the transaction and reserves after you close. Assets are one of the least-discussed factors in terms of qualifying for a loan, but they are important to understand.

When you apply for a mortgage, your lender will verify where the down payment and closing costs come from, plus other assets. This means you cannot simply come up with the money. Your lender will need a paper trail to see where it came from. If you show that the down payment came from your savings account, your lender will be more confident in your overall financial picture.

You will need to document the funds used for the down payment and any reserves you have after closing. This is an important step because you may need to rely on your assets and savings if you have a financial setback, and your lender wants to see that you have money set aside.

Home Loan

What are Assets?

Assets that can be considered on a mortgage application include bonds, mutual funds, stocks, retirement funds, life insurance policies, and an estimated value of any property you have such as real estate. These assets can be used to qualify you for a mortgage, even if you have limited income!

Assets will include any money you use for the following:

  • Down payment
  • Closing costs
  • Prepaid costs including property taxes and homeowners insurance
  • Reserves, or what you have left after closing
Retirement Funds

Lender Requirements

Your lender will verify that you have enough cash to cover monthly mortgage payments without assistance, which means showing financial stability and security. Before you apply for a loan, make sure your assets have been "seasoned," which means any large deposits or transfers have been in your bank account 1-6 months, so the lender can see where they came from and what they were for.

This means you should not have any surprises or sources of money that cannot be traced back.

Asset Documentation

Documenting Your Assets

All money used for closing costs and a down payment must have a paper trail. The easiest means of documenting your assets is through your bank statements. If the money has been in your account for the entire period of the statements requested by the lender, the assets have been seasoned. If you have a large or unusual deposit, you can expect your lender to ask for additional documentation showing the source of the money.

If you plan to use gifted money for your down payment, you will need to provide additional documentation. This typically includes a letter signed by the giver stating your relationship, the amount given as a gift, and the fact that the money is a gift and not a loan.

Mutual Funds

Common Mortgage Problems

The following are the most common asset-related issues that may come up during underwriting.

  • If you have too many cash deposits, it may raise a red flag.
  • If you are using gifted money or seller assistance, your lender may be worried about your ability to repay the loan.
  • If you have large deposits that appear excessive for your stated income, your lender will want to know where you got the money. They may even assume that you got the money from a loan that is not listed on your credit report.
Life Insurance Policies

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