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Understanding Assets and Their Role in Obtaining a Mortgage in Today's Market

September 9, 2016 9:18 pm

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.
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.  
Perhaps you took the money from a 401k or your employer gave you a loan against your future salary. While these funds may have helped pay off some debt, they will hurt you in the long run because your finances will be less in the future. Borrowing from relatives doesn’t work either because if you use money or other assets that aren’t included on your income or tax returns, it can’t be used to help you qualify for your loan.
In other words, if the money came from a family member, employer or a different account, it could harm the potential of getting a mortgage. Large deposits will raise an underwriter’s eyebrows, leading them to wonder if a borrower took out a loan that has yet to appear on a credit report.
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.
To learn more about assets, contact our office today.

Published with permission from RISMedia.