Assets
When you apply for a new mortgage loan, the lender will review your application and determine if you are a good candidate to lend to. As part of the preapproval process, the lender will look at your credit score (this indicates your history of repaying debt), your debt to income ratio (this shows the amount of money you can afford for a monthly mortgage payment), and your total assets (including your cash reserves for closing). The bank is especially interested in your liquid assets (or cash that is immediately available) because they want to verify you will be able to cover the down payment and closing costs on a new home purchase before agreeing to lend you the rest of the money.
When the lender examines your total assets, they will have a better understanding of your financial stability. The lender will assume that an applicant with a strong financial history and established savings patterns will be more likely to budget for their monthly mortgage payment. While it might seem like simply having the money in your bank account is enough, the lender will want to verify where that money came from.
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What is Considered an Asset?
Many lenders will want to see that the borrower has a specific amount of cash reserves available before granting them a loan. For example, if the homebuyer has a poor credit score, some lenders will want to see that the borrower has at least six monthly of mortgage payments in liquid assets. The requirements vary depending on the lender, but here is a list of items that are commonly considered assets:
- Earnest money deposit (the money the borrower has put down to show their intention of buying the property)
- Checking/Savings/CD/Money Market Accounts
- Business accounts
- Stocks and bonds
- Cash gifts
- Sale of assets (such as the sale of another property)
- Seller contributions (money that the seller offers for closing costs or for home repairs)
- IRA/401k and other retirement accounts
How and When to Provide Additional Documentation
The bank is primarily interested in lending to an applicant who has a predictable financial footprint and can show where their assets came from. A monetary gift from a family member or a cash deposit that isn’t documented will cause concern. Large, one-time deposits to a borrower’s bank account might actually require additional documentation. Your bank can provide a VOD (verification of deposit) that outlines all of the deposits you have made within a specific time period and reports the average monthly deposits as well. This could be a more effective than simply showing a lender your bank statements.
