Your assets are the funds you are going to use to purchase the home, and what funds are being used for reserves if required. This is one of the most commonly misunderstood parts of the loan process and the one part that causes the most issues in underwriting. Outside of some VA loans, nearly every other purchase loan will always require proof of assets to show sufficient funds to close. That means we need to show 60 days of bank statements with an ending balance showing enough funds to take care of your down payment, closing costs and prepaids. Cash is never acceptable for any part of the mortgage process! If you are someone who does not believe in banks, think of the irony in trying to get a loan from one. 🙂 Cash is considered “mattress money” and cannot be used. This is to prevent mortgage fraud, money laundering, and terrorism. Stick it in a bank account immediately and let it “season” for a couple months. If your bank account shows a large deposit that is not from your work, it will have to be sourced. If we cannot source it, it cannot be used.
Gift funds from a relative can be used, but we have to source the funds from their account and show those funds debited or transferred from their account into yours. If they write a check, we’ll need a copy of the check. I can explain the gift funds process in more detail when we talk if need be. There are a couple options to make it less invasive for the gifter, but it’s all situational dependent.
Many people think they need to put down 20% of the sales price to get a loan, but that is not true unless you are trying to avoid mortgage insurance. For Conventional loans you typically only need a minimum of 5% down (although we can see if you qualify for a 3% down program), for FHA you need a minimum down payment of 3.5%, USDA requires no down payment, and VA requires no down payment. So if you are getting a $170,000 loan via FHA financing, your down payment would be $5,950. If you bought a $170,000 home with a conventional loan, your minimum down payment will be around $8,500. We would then add in the closing costs and prepaids to see how much cash (in the bank) you would need to close the loan. We would subtract from this amount any seller concessions towards closing costs and prepaids, and any lender credits you may get to determine the final number. It is possible to have zero out of pocket closing costs and prepaids if the seller and the lender are contributing enough; however, you cannot get around your down payment amount. This is your “skin in the game” and the lending institutions require that come from you so that your money is invested in the house. This helps to keep loan default rates as low as possible. The only exception to this is if you are receiving gift funds from a relative.
In order to verify assets I will need the following:
- 60 days of bank statements from all bank accounts you will be using to show sufficient funds to close
- A copy of the earnest money deposit check or money order
- 60 days of statements from any investment or IRA accounts being used for reserves
- If you consolidated funds from multiple accounts into one account within the last 60 days, I will need 60 days of bank statements from each account to trace the consolidated funds