Verifying Assets for a Mortgage
Asset verification, for those who are not laden with assets, can be an invasive process. The bane of loan officers, processors, and mortgage underwriters everywhere, it can be painfully tedious for potential homebuyers, too. If you have ample green, with a few extra hundred thousand left after your down payment, you will not get the same inquisition level as other buyers. The first-time buyer, with barely enough money for a long trip to IKEA after they close, can expect a more formal inquiry than their future—more successful—selves can expect.
If everybody hates it, as conditioned as they have become to the document-dominated burden of getting a mortgage, it must be bad. So why is it done? Because lenders must ensure that you have enough money to cover your down payment and your closing costs. People are people, and their financial behavior reflects that. People occasionally overdraft. People sometimes don’t know where that $287 cash deposit came from, exactly. Sometimes they know exactly where that $287 cash deposit came from, but prefer the lender not know—even if not knowing means their loan approval is in jeopardy.
So do not blame your loan officer, who is just following guidelines when he has to verify your assets. The easiest path, with the least amount of pain, is to comply. Here are the habits you should avoid and should adopt to make the process easier, and speed your application on its way to approval.
What Is Considered an Asset?
Assets are basically any funds that you have available to you. They comprise your net worth. They can be from any of the following sources:
The Perils of Cash
Lenders are required by law to verify all the assets you list on your loan application are verified and properly sourced. They do this by reviewing the two most recent statements for any accounts listed on the application. When reviewing the statements, every deposit—no matter how small—must be verified as to its source.
Lenders cannot work with untraceable funds from a borrower. That often means that cash deposits into an account cannot be used. Deposits of cash can actually taint the whole account so that none of the money in that account can be used for the purchase of the home.
If your practice is to cash your paycheck, pay your bills with the cash, and deposit the leftover money into the bank, stop right now. Deposit your check into your bank and take out only what cash you need so that you don’t have any cash deposits going into your bank account.
Dings by Nonsufficient Funds
A lender reviewing your bank statements can deny the loan if there are charges for nonsufficient funds (NSF) or overdrafts to cover ATM withdrawals or checks you wrote on the account. A bank is not going to lend you money if you have numerous NSF fees or overdraft charges on your account. If you had one or two incidences that can be explained in a letter, that might be excusable. But a pattern of them sends up red flags. So keep a cushion In your accounts, and stay on top of your balances.
Problems With Gifts
You can use a cash gift from a family member, employer, or close personal friend to help with a down payment or closing costs. But this can only be done if the person giving the gift can prove that the money was in a bank account prior to bestowing it on you. Like your own assets, gifts have to be verified and from an allowed source. It's preferable if the donor's bank statement doesn't include large deposits immediately before the date of the withdrawal; if it does, those deposits also must be sourced or the gift will not be allowed.
In addition to a bank statement from the donor showing the money to give, you will also need to provide proof the gift was given, such as a copy of the check, and you must provide proof the gift has been deposited into your account. Usually, a bank statement showing the deposit will suffice.