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 means, with a few hundred thousand dollars 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 asset verification, 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 overdraw. 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 that the lender not know—even if not knowing means that their loan approval will be in jeopardy.
Do not blame your loan officer, who is just following guidelines when they have 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.
- Lenders need to verify your assets for a mortgage to ensure that you have the funds to pay your down payment and any needed reserves.
- Cash is difficult to trace and might not count as an asset if its source can’t be verified.
- Charges for nonsufficient funds and overdraft fees are red flags to lenders.
- Many loans allow gift funds, but they also need to be verified.
What Is Considered an Asset?
Assets are basically any funds or investments 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 verify that all of 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 only 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 need to provide proof that 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.