Common assets considered in a mortgage loan application Stocks, Bonds, Mutual Funds, 401 (K) and Retirement Accounts;. Your investment assets can play a critical role in helping you qualify for a home loan. Asset-based mortgages amortize your assets after the down payment, closing costs, and required reserves. In other words, you spread your assets over the term of the mortgage to determine your eligibility for a loan.
Mortgage lenders will want to verify that you have the means to pay the principal, interest, taxes and insurance (PITI) on your mortgage. This capacity is determined by the assets you own and that have value, such as savings accounts, checking accounts, stocks, etc. When these assets have a cash value (or are easily converted to cash), they are known as “liquid assets”. Lenders want to confirm that a sufficient amount of your assets are liquid in the event of a financial emergency that prevents you from meeting your mortgage payments.
When life presents you with obstacles that reduce your income (the loss of a job or a medical emergency, for example), your liquid assets are there to help you pay your bills. In addition to documenting your liquid assets, you can also submit evidence of non-liquid assets or assets that are more difficult to convert into cash, such as cars, your own businesses, and any other item of material value, such as works of art or jewelry. Some inliquid physical assets are called “fixed assets,” meaning that they can take longer to be converted to cash and may experience a change in value from when they were originally purchased. This may include antique furniture and some types of real estate.
To use your money safely without jeopardizing your mortgage approval, provide a bank statement showing the deposit of the funds in your account, as well as a bank statement from the person who made the gift showing that the funds were previously deposited in a legitimate account. For any donation fund that you decide to use to buy a home, you will need a gift letter that verifies its origin and that makes it clear that the money is not a loan that the prospective borrower will eventually have to repay. However, for the inliquid assets you own, you may have to provide documentation from the first time you purchased them or certificates of ownership in order for them to be considered a legitimate part of your asset portfolio. For asset verification, mortgage lenders will ask you to prove ownership and income as part of the mortgage loan application.
The Rocket Mortgage Learning Center is dedicated to providing you with articles about buying homes, types of loans, mortgage basics and refinancing. An asset-based mortgage creates an “income stream” from your assets by using them up over the term of the mortgage.