When it comes to evaluating your qualifications for a home loan, a variety of factors will be assessed. These include your credit score, DTI ratio, employment status, and your assets.
The more assets you have, the less risky you are to lend to. Proving your assets can be particularly important if there are deficits elsewhere in your borrower profile. But how do you document your assets during the loan application process?
First of all, it is important to know how a mortgage company defines “assets.” Your assets could include:
- The money which is in your savings account(s)
- The money which is in your checking account(s)
- Money in CD accounts
- Money market account balance
- Money in brokerage or retirement accounts
- Real estate you own
- Other investments
To verify your assets, lenders will take a look at the balance in your accounts. But there is a catch which some homebuyers are not aware of, and that is that the balance should not take the form of recent cash deposits.
For example, if someone has just given you a large cash gift and you have deposited it within the last several months in your bank account, the lender may ignore it when adding up your assets.
If the lender is willing to consider the cash deposit, further paperwork will be required in order to document where it came from.
Why Do Lenders Not Trust Cash Deposits?
Let’s say that your parents just gave you a lump sum of cash to help you out. It is a gift with no strings attached, so you put it in your bank account without a second thought.
A lender seeing this may not be sure what that cash really means. Are they meant to take you at your word that the money is a gift? What if your parents just loaned you the money, and expect you to pay it back? That would mean you are not as financially viable as you might appear.
The longer a cash deposit sits in your account undisturbed, the less of a concern it will be to a lender. The more recent it is, the more questions they will have about it.
So, if you know you will be applying for a mortgage at some point soon, you should not leave cash sitting around under your bed in a safe. Deposit your cash assets as soon as you can so that they have time to age in your accounts. Maintain careful documentation of all money coming into your account.
First Residential Mortgage Can Answer Your Questions About Asset Verification
Now you know some of the basics of asset verification when applying for a mortgage. If you still have questions about how to verify your assets and how your assets could affect your eligibility for a home loan, please contact us today at (540) 838-5868. We can answer all of your questions during your consultation. We look forward to qualifying you for a competitive mortgage in Virginia.