Verifying Your Assets When Getting a Mortgage
Asset verification is the bane of loan officers, processors, and mortgage underwriters everywhere. If they all hate it, as conditioned as they have become to the documentation burden of getting a mortgage, it must be bad. It can be painfully tedious for potential homebuyers, too. So why all the hand-wringing?
Because people are people, and their money 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 you not know—even if not knowing means their loan approval is in jeopardy.
Asset verification, for those who are not laden with assets, is invasive. 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—versions can expect. So do not blame your loan officer, who is just following guidelines. The easiest path, with the least amount of pain, is to comply. Here’s how you should do it.
What Does Underwriting Consider an Asset?
Assets are any source of funds that you have available to you, which can be from any of the following sources:
- Savings accounts
- Money market accounts
- Retirement accounts
- Brokerage accounts (stocks and bonds)
Problems With Cash
The assets you listed on your loan application must be verified, and your mortgage planner must also verify that you have enough money to cover your down payment and your closing costs.
Banks are required by law to verify that all money in a bank account is properly sourced, which means cash is bad. Lenders cannot work with unsourced funds from a borrower.
Banks are required to verify any account by reviewing the two most recent statements for any accounts listed on the loan application. When reviewing the statements, every deposit—no matter how small—must be verified as to the source of the deposit.
Cash deposits into an account that cannot be sourced 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.
A lender reviewing your bank statements could deny the loan if there are charges for nonsufficient funds (NSF) or overdraft charges 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 that can be explained in a letter, that might be okay.
You can get a 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 before the gift was made.
The donor needs to provide a bank statement that shows the money and no large deposits. If there are large deposits in that account before the gift was given, those deposits must be sourced or the gift will not be allowed.
You are not allowed to receive cash gifts to help with down payment or closing costs unless they are verified and from an allowed source. 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.
The proof the gift has been deposited is simply a bank statement showing the deposit.