How Your Assets Figure in the Mortgage Process

Man and woman with blueprints.

Many home buyers know that their assets are good sources of a down payment, but do you know assets play other key roles in the mortgage process?

Assets are liquid funds that borrowers can put down on a property and use as closing costs, but also to show as reserves to satisfy lender requirements.

Conventional mortgages require that borrowers have, in addition to their down payments and closing costs, the two-month equivalent of a full-house payment, including taxes and insurance. On the other hand, Federal Housing Administration and Veterans Affairs mortgages have no reserve requirements beyond what is required to close the transaction.

Sources of assets include funds from checking and savings accounts. Funds from retirement plans may be used, but often they must be withdrawn from the plan during the verification process to prove to the lender that those funds are available; many retirement plans have restrictions on withdrawal terms.

Asset history must be documented for 60 days. All non-payroll deposits made in that time period must be able to be supported by documentation, including bank copies of the full deposit after it’s been processed, and possibly letters of explanation as to where funds come from.

Financial gifts from close family members may be used, but the gift giver must supply documentation to prove that he or she can provide the funds. Sellers also may provide credits to the borrower for the purpose of assisting them with closing costs or reserves, but they can’t provide down payment funds.

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