Documenting Assets

Your assets, and how they are documented, are an important part of the application. Lenders like to see that you have accumulated some assets, as that is an indication of financial responsibility. Documenting assets accomplishes, primarily, the following three things:

1. Proves that you have adequate funds to pay for your down payment and closing costs. Purchasing a home can be an expensive prospect and the costs can, sometimes, surprise purchasers. If the purchaser does not have enough money to close a loan, then obviously they can't be approved. If there are insufficient funds, then the borrower will have to switch to a loan program that requires either less reserves or downpayment, or both.

2. Demonstrates that you have adequate reserves. Reserves are monies that are left over after the loan is funded. In some instances, lenders will want to see that you have enough money to at least make the first few initial payments.

3. Sourcing the funds. Lenders will want to see where the money is coming from. The primary purpose of "sourcing" the funds is to prove the money is not borrowes. Underwriting guidelines do not allow down payments to be borrowed. The money can, of course, be a gift, but that requires its own documentation.

As a rule, avoid making unusually large deposits prior to applying for a loan or during the loan process. Lenders will view this as a red flag and will want to see a paper trail for where the money came from. If you keep a large amount of undeposited cash, and intend to use it for a down payment, it is best to deposit it into a bank account at least two months before you want to close your loan. This will allow the funds to be "seasoned," which means they would be eligible for use as documented assets.

Assets can come from a number of sources, including:

• Checking and savings accounts
• Money market accounts
• Stocks, bonds, and mutual funds
• IRA (with some limitations)
• Existing real estate that you currently own
• Gifts from relatives
• Trust accounts
• The sale of personal assets
• Disaster grant or relief
• Cash value of a life insurance policy
• Borrowed funds secured by an asset
• And other sources

To learn more about Assets, see the following links:

The Down Payment

Documeting Your Assets

Mortgage Saving Tips

Gifts as Downpayments

Homeowner Deductions

401K for Downpayment

Holiday Saving