Assets, What Lenders Are Looking For

Q. What are banks looking for when they ask about your assets?

A. The easy answer is The More, The Better. Lenders examine a borrower's assets to analyze a borrower's eligibility in two areas:

1. Confirm that the applicant has sufficient assets to meet  closing costs and program guidelines.

2. Verify that such assets are acceptable.

The accumulation of assets demonstrates how well the borrower has used his or her income; while the record of liabilities shows how well the borrower has handled debt. A negative net worth generally means that the applicant is over-leveraged (over-borrowed) and could result in rejection.

Mortgage loan applicants do not have to disclose all assets, just enough to qualify. The applicant must show sufficiency in two areas:

1. Liquid Assets.
The borrower must verify sufficient liquid (cash or easily cashed) assets for any down payment, closing costs, prepaid expenses, and reserve requirements. The following liquid assets are acceptable in determining the applicant's qualification:

* Cash on deposit
* Cash deposits toward purchase
* Cash gift
* Secured loan proceeds
* Sale of assets
* Life insurance policies
* Stocks, bonds and money market funds
* Real estate commissions
* Seller and lender subsidies
* Rent credit
* Pension, IRA and 401k accounts
* Bonus income

2. Hard Assets. 
The borrower should demonstrate positive net worth. For most borrowers, hard assets must be counted to establish positive net worth. The accumulation of assets demonstrates how well the borrower has used his or her income; while the record of liabilities shows how well the borrower has handled debt. A negative net worth generally means that the applicant is over-leveraged (over-borrowed) and could result in rejection. The prospective borrower must have enough verified liquid assets to cover the loan's down payment, closing costs and prepaid items without resorting to borrowed funds as well as additional reserves for the first payments due. These four expenses require cash or easily cashable assets because they are paid at the closing or in the initial months.

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