Here’s a quick tip when you’re filling out your mortgage application: Don’t underestimate the importance of including all of your assets. It could make a difference in the type of mortgage and interest rate you receive.
We’ll walk you through the assets you should include so you make sure you get the right mortgage loan for you.
Why Reporting All Your Assets Matters
When a lender goes over your home loan application, they’ll take a look at your credit score, total debt and total income as well as your overall net worth. Your net worth matters because it tells your lender how much money – between your income and assets – you really have.
You might wonder how net worth is calculated. Your lender will subtract all of the debts you owe from your total assets in order to calculate your net worth, which will give them a better picture of how much money you actually have.
Your net worth allows a lender to get a better picture of how you will make your mortgage payments, down payment and closing costs.
They’ll also take your assets into consideration to determine how you’d make your payments if you lost your job – could you stay afloat for a few months? Your lender can decide how risky of a buyer you are by taking a look at not only checking and savings accounts, but also the amount of equity you have tied up in assets.
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Assets To Include
What are assets, anyway? Assets are items you own that have a monetary value. They are usually grouped into three categories: cash, cash equivalents and property. The value of your total assets usually increases throughout your life.
Your income and salary information will be required on your mortgage application – but this is not an actual asset. Let’s walk through each asset type in more detail so you can be sure you list everything of value on your mortgage application.
1. Cash And Cash Equivalent Assets
Be sure to list all of your cash and cash equivalents on your mortgage application. These assets include any cash you have on hand, the money in all of your checking or savings accounts, money market accounts, certificates of deposit (CDs) and more. In other words, any money you have in accounts that could be pulled out as cash should be listed.
2. Physical Assets
Physical assets include anything tangible that you own that’s valuable – anything that can be touched. Physical assets that can be sold for funds to be used to qualify for a mortgage include – but are not limited to – properties, homes, cars, boats, RVs, jewelry and artwork.
If you plan to use physical assets as assets to qualify, they'll need to be sold before you close on the home. Property value guidelines and the type of documentation required to vary depending on the type of loan you're getting, so we recommend you speak with one of our Home Loan Experts about your personal situation.
3. Nonphysical Assets
Nonphysical assets aren’t as liquid – and they don’t have a physical presence like a house or car. Pensions, 401(k)s, IRAs, bonds, stocks and even royalties fall into this category. You might be able to get rid of them or even borrow from them, but it would require planning.
4. Liquid Assets
Any nonphysical asset that you can instantly convert to cash would fall into this category, like readily tradable bonds or stocks. Liquid assets are different from nonphysical assets because you can easily trade them for cash within a short amount of time.
5. Fixed Assets
There are some physical assets that may take longer to receive cash for, like furniture, some real estate and antiques because you have to work to sell them – it usually doesn’t happen instantly. Fixed assets’ values can change from the time that you buy them. You can report them as fixed assets on your loan application with their most current value.
6. Equity Assets
If you have any ownerships in businesses in the form of retirement accounts, stocks or mutual funds, these are considered equity assets. Be sure to include these on your home loan application.
7. Fixed-Income Assets
Fixed-income assets include any investment funds that have been lent in exchange for interest. This typically includes government bonds and some securities and CDs.
What Assets Are Most Important To Lenders?
Lenders will take all of your assets into consideration when you apply for a mortgage, but there are a few that tend to carry more weight. Your cash and cash equivalent assets and any liquid assets rank highly because they are easily and quickly accessible. In a bind, you could use these funds to pay your mortgage.
Physical assets also rank high on the list for lenders because you can typically convert them into cash quickly. Selling your car or jewelry often does not take long, so if you had to sell one car in order to make mortgage payments, you could do so in a reasonable amount of time.
How To Calculate The Value Of Your Assets
Some assets have a clear value, like cash and stocks. But you may have questions about the actual worth of some of your physical items, like your car, home or artwork. The best way to find out the most current value of these items is to hire an appraiser to review them and determine their value.
You can hire a car, home or art appraiser to view the current condition of your assets so you have an accurate number to report on your loan application. You can also use online appraisal calculators, but keep in mind that these calculators will not be as accurate as hiring a professional.
Do I Need To Insure My Assets?
It may be a good move to buy insurance to protect your assets. Some of your assets may already be insured – certain laws mandate that your home or your car are insured.
Your home insurance may cover the value of some of your belongings, but if you have high-value jewelry, you might consider purchasing separate insurance or add on to your existing home insurance plan. For example, you’ll typically pay $1 – $2 for each $100 of value for jewelry coverage.
You can also protect your income in the event that you are not able to work due to a physical injury or illness. Your job may provide disability insurance, but you also might want to purchase your own policy in case you are hurt or injured outside of work.
How Lenders Verify Your Assets
After listing your assets on your application, your lender will verify that all of your financial information is correct. They’ll need to make sure that all assets are really yours and that they are traceable.
This means if you have large amounts of cash deposits going into a checking or savings account and the source can’t be traced, your lender might ask some questions. Let’s say you tend to cash your check and then deposit cash for your bills into your account. This could show up as a red flag when your lender reviews your banking history. It’s always better to deposit your check and then pull out the cash you need.
Your lender will also check your overdraft history. If you frequently overdraw on your account – you spend more money than is available to you – this will show up as a red flag during your lender’s verification process. It could cause your lender to deny your loan request.
Your lender might have questions about your physical assets. In this case, you can give your lender your appraisal report or insurance policy, which should answer any questions about an asset’s current value. This paperwork must be in your name to prove you are the owner.
How To Get Help With Your Assets
It might be a good idea to reach out to a qualified financial professional before you fill out any loan paperwork. Schedule an appointment with your accountant to review your assets and make sure there are no red flags that might prevent you from getting your loan approval.
Don’t have an accountant? You can find one by talking to trusted friends or colleagues, doing research on the best accountants in your area or checking with your real estate agent.
Your assets play an important role in the home loan approval process. You should list all of your valuable assets on your mortgage application to improve your chances of approval on a high loan amount. Make sure you can verify the value of all of your assets and prove that they belong to you, through insurance policies or appraisal reports.
You might need help reviewing your assets and deciding what to include on your home loan application. If that’s the case, reach out to a professional accountant who can review your finances with you.
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