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Let us talk about Assets

Assets

Assets are the funds that you are putting into the transaction, and are used toward:

Deposit, also called Earnest Money

Down payment

Closing costs

Reserves

Documenting Assets

Lenders like Maureen, will ask for a minimum of two months of the most recent statements of any account that you plan to use. You aren’t required to document every account you have by the way. You only need to show enough assets to be able to qualify.

Documenting Non-payroll and Large Deposits

What are of particular interest to your lender on your financial statements are deposits that fall outside of your typical payroll deposits, and especially those that are large.

Examples of non-payroll deposits include anything from expense checks at work, to money that you obtained from selling that dining room set at the neighborhood garage sale, to the side-business that you operate.

They are looking for explanations that make sense to them. What they want specifically is proof that money that you are using to finance your home is legitimately yours.

Whatever the source of these deposits, your lender will need two things. The first is for you to write a short, signed and dated letter explaining what they are. The second is to get a copy of the actual deposit from the bank. If the deposits were electronic, you will however just need the letter. Yes, if there is one part of this process that can become cumbersome, this my friends, is it.

Sources of Assets

The main sources of assets that borrowers tend to use to purchase a home are checking and savings accounts, IRA and brokerage accounts, employer retirement accounts, and gifts.

Funds needed for closing need to be in liquid form. This means that they are in as close to cash form as possible. Typically money taken from the sources above will be put into a checking or savings account, making them liquid. Once they are liquid, they can then be turned into a cashier’s check or wired to the title company for closing.

Checking and Savings Accounts

Funds here are already liquid. Nothing more to do with them.

IRA and Brokerage Accounts

These are non-liquid, and if they are to be used, they will at some point need to be removed and put into a checking/savings account. Brokerage accounts, especially those that are stock heavy tend to fluctuate in value from day to day.

This being the case, lenders will only allow you to claim 70% of their value as usable assets on a mortgage application.

Employer Retirement Plans

Retirement plans through employers are also a great source of funds to use, providing you have access to them. Plans have different provisions as to what they will allow as far as access to the money. If you intend to use this money, please check with your own plan before you start the home finance process.

Employees, with regard to retirement plans fall into one of two categories, those that are under 59 years of age, and those that are older.

Those that are older typically have more access to the funds. Those that are younger have less though, again depending on the plan.

If you are under the age of 59 , your plan may allow you access in the form of either a loan, or some type of limited withdrawal, including a hardship withdrawal, which is detailed below.

If you are planning on using any employer retirement plan funds, your lender will ask you to get from your plan what is called a Summary Plan Description, or SPD. This is a document that will tell them what options you have for taking money out of the plan, both now, and in the future.

In fact, if either you, or your employer contribute to the retirement plan, regardless if you are using it in the purchase of a home, your lender will want to see the SPD. At a minimum your lender will know that you are contributing by the fact that they will see deductions on your paycheck. It will also be apparent on your W-2.