When dealing with the prospect of buying a home, assets can be one of the most important pieces of the puzzle. Not only do assets come into play when determining whether you can afford a loan, they also play a large role in determining whether you’ll be able to get the mortgage you need.
Mortgage lenders dissect the entire credit history of a potential client, and assets play a big role in the process since they’re a reflection of a borrower’s fiscal strength. Taking this one step further, a borrower’s ability to save and properly budget could be a significant indicator to their future paying habits. Simply put, when mortgage lenders examine your worth, they look at the amount of money needed for the down payment and closing costs, prepaids such as insurance and taxes, escrow and money that would be available in reserve in case of an emergency.
Common assets considered in a mortgage loan application include stocks, bonds, mutual funds, 401k and retirement accounts, life insurance, cars, boats, antiques, jewelry and other real estate. When an asset is referred to as being “liquid,” it has cash value, or can easily be converted to cash. Liquidity is important in cases of financial emergency. Liabilities can be listed from the borrower's credit report. Alimony and child support payments also must be disclosed, so the lender can evaluate the borrower's financial obligations.
The source of where your assets came from is also important. Anyone who has attempted to get a loan recently knows that restrictions have tightened, and when borrowers are paying off credit cards to get their ratios in line, lenders are asking where that money came from.
Make sure you can document the source of funds in your accounts. Did you parents give you a large sum towards your downpayment? Lenders must scrutinize “gift money” because make programs have gift limits. A lender will want to make sure the money you’re getting is truly a no‑strings‑attached gift. After all, if the money is a loan in disguise, that affects your financial picture and potentially your ability to meet your mortgage payments. How can you prove the cash is yours free and clear? You’ll need your benefactor to write a gift letter. This should include:
- The gift giver’s name, address and phone number, and relationship to you
- The exact dollar amount of the gift
- The address of the property the gift will be used to purchase, if known
- A declaration that the gift is not a loan, and is not expected to be repaid
- The gift giver’s signature and the date
Some loan programs will also require the gift giver to provide bank statements, so check with your mortgage professional about those requirements.
Before applying for a mortgage, make sure you take the time to get your assets in order and hold onto any and all documentation should questions arise. If you don’t think your assets are enough for your dream home, you might consider opting for a smaller home or waiting a little longer until everything comes together. NJ Lenders Corp has helped over 50,000 homeowners since 1991. If you need a financial review, a pre-approval or just have some question while you prepare for the mortgage process call our office today.