Mortgages Explained – Assets

By Douglas Katz – 07/11/2022

  • Sourcing and documenting your assets is exceptionally important.
  • Not all assets are created equal and requirements for each are different.
  • While asset requirements and sources are flexible they are immutable and you need to know the why and how for a successful deal.

So, you’re buying or refinancing a home.  Your lender asks you about your financial picture to include assets, but what do they mean?  While generally referring to money and savings that you have, it can also mean a little bit more.  To grasp the asset situation, let’s first take a look at the why as when I explain it to my clients from that perspective it generally seems to go better.

Say this out loud as you read it because this is the most important part of the article.  To get money you need to have money.  Before diverting to concepts like grants and other resources for homebuyers and homeowners, just get this concept.  There will be a litany of things that cost money for your loan and once you understand that, you will better understand the assets.  So let’s take a quick look at the requirements driving the need for assets.

  • Down Payment – This is the requirement to bring funds to set the loan amount for your loan.  Loans have guidelines and the loan-to-value is one of the criteria on all loans.  You will need to secure funds to cover the difference between the purchase price and the loan amount.
  • Closing Costs – These costs are the items that you will pay the lender, the title company and any other third parties to secure the loan.  You will receive a loan estimate when you apply, but for this just think about these costs as:
      • Lenders fees and costs are what you pay the bank or broker for the deal.  They are generally comprised of processing, underwriting and closing of the loan by the lender to include credit report and appraisal.
      • Title fees are separate from the lender and generally include title search, title insurance and closing of the loan by the title company.
      • Third party costs such as the inspection, attorney fees and insuring the property.
      • Transfer Stamps and Taxes are the cost for the transfer of ownership from one entity to the other and they vary from place to place.
  • Escrows – These are requirements that you will have to meet to close, but they are not a fee.  When paying escrows, you are funding an account with the lender from which they will pay insurance and real estate taxes when they come due for your loan geographical location.
  • Reserves – Although not part of the transaction, you will for some circumstances need to show sufficient assets to cover the payment on the property that you are financing, as well as others that you may own, to verify that you can make the payments if times get tough.  Again, you will NOT need to liquidate, but you will need to show the assets and that you have full access.

So now that you see the general categories that make up the cost to you when you get a loan.  They will vary a good bit from transaction to transaction, but this is a solid start point to understand why you need money to get money.  The good news is that sources of these funds are as varied as the requirements.  Regardless of the type of asset that you are using, you will need to document the validity and source of the funds for your deal.

  • Bank Accounts – As you might expect this is inclusive of checking, savings, CDs and the like.  Since these are the most liquid type of accounts, they are evaluated at face value.  To document these accounts expect to provide 30 – 90 days of full statements depending on the loan program.  Some key things to remember:
      • Any large deposits that vary from your normal monthly activity will need explanation and documentation.  Large deposits are generally defined by a certain percent of your monthly income and the lender WILL absolutely find them and request these aforementioned information.
      • While joint accounts are allowed even when only one account holder is the borrower, you cannot just add someone to an account the day before close and use the funds.  You will still need to provide statements as documentation and you will often need a full access letter that confirms that you can use the funds without approval of other account holders.
      • Screen captures can work for some supplemental requirements, but will not be accepted as a replacement for statements.  Any printouts will need to have the URL, the account holders, the account number and transaction history.  A good tip is that you should always pull screen captures that have transactions that overlap with the last provided statement.  This gives you continuity for the documentation.
  • Investment Accounts – These are generally the same as bank accounts but for a few differences.
      • They will be evaluated at a number less than the current market valuation to account for market fluctuations that could lower the value before you liquidate them for the deal.
      • Lenders will usually accept quarterly statements as these accounts sometimes only provide quarterly statements.
  • Retirement Accounts – These will be treated like investment accounts but will also be evaluated with any penalties or costs to access.
  • Gifts – Gifts are funds and/or equity provided from a family member to help with the deal.  Most programs only allow for spouse, immediate family or a close family member who is not immediate family but has filled that need.  In the latter case you may need to formally explain and document in some way the depth of relationship.   In ALL cases you will need to provide a signed gift letter, proof of funds and proof of the transfer, i.e. funds leaving the donor account and going into your account.  I get a lot of clients who get upset when these items are requested as they feel the gift was provided and it is “none of my business.”  The lending industry and the government, however, are required to get the documents due to everything from fair lending regulations to anti-money laundering requirements, so it is best just to comply and get them in as fast and complete as possible to avoid delays.
  • Credits – As part of a deal, you may be getting money back from the seller, the lender or the realtor.  These are all allowable, but they MUST be documented and reflected in the loan for evaluation by the underwriter.  Also, like gifts, there is a cap on what is allowable for credits from the different sources and they may differ from source type to source type.
  • Grants – Grants are funds provided by a third-party organization to help homebuyers meet their needs.  It is important to fully understand these sources as they often come with requirements to structure the loan a certain  way as well as longer term considerations for payback if you sell or refinance before a certain date.  Like the other sources, expect to provide documentation to verify and confirm the access and receipt of the funds.
  • Cash – This is last on the list because it is usually not allowed.  As I said earlier, a lot of regulations limit or omit cash as an asset because it could come from anywhere.  I generally advise my clients to use their cash to service their debt and pay bills to preserve the more generally accepted sources and to avoid going down the cash rabbit hole.  If you have any cash right now and are considering a deal, I recommend getting it into an account as soon as possible to make it a documented source, but ONLY if you have enough time to have it show on a few statements.

So when you add these sources together, you get your assets.  I always recommend getting these documents together early and updating through the process.  This will also allow you to back into your viable loan size as well as identify any shortcomings early which enables you to begin making arrangements for a gift, to be added to an account or even to add a co-borrower if you need the full weight of their assets as opposed to just a gift.  You probably noticed that I did not mention items like cars or other personal items.  Unless these items are collectable, they are not considered usable assets for your deal.  The best thing to always do is engage a lender early in the process for help as their expertise will help you be prepared and to avoid mistakes,

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