Do Assets Help to Get a Mortgage?
When applying for a mortgage, some people are uncomfortable divulging all of their personal information regarding income and assets. People often focus on their income and credit scores and less about the assets.
What you will find out is how important assets really are when getting approved for mortgage. Your assets can be a difference making compensating factor when your credit scores and income are lower than what the lenders prefer.
Do Assets Help to Get a Mortgage?
Assets are a significant compensating factor when applying for a mortgage and can help you to get approved even if you have bad credit or low income.
What are assets?
There are many different types of assets, and the most common one that we all know about is the money in your bank accounts. In addition to cash, assets are essentially anything you own that has economic value. However, not all assets may be used to qualify for a mortgage.
What Type of Assets Do Banks Care About?
Liquid assets are what will get a lender’s attention. The benefit is they can be quickly liquidated to help make mortgage payments if needed. In the example of a vehicle above, sure it has value but the chances that someone will be able to sell their car quickly to make a mortgage payment is slim.
If you aren’t sure which of your assets are liquid, just imagine that you were randomly fired today (hopefully that doesn’t happen), what assets could you quickly turn into cash to live off of?
Examples of liquid assets that can help you to qualify for a mortgage:
- Bank accounts- checking and savings
- Investments in stocks, bonds, CDs, or retirement 401k accounts
- Real estate
- Any other liquid asset
Examples of assets that lenders will likely not take into consideration:
- Real estate
- Collectibles such as vintage musical instruments and paintings
** The exception here is real estate. Lenders do like to see equity in other properties that you may own.
Do Assets Make You a Stronger Buyer?
When you are purchasing a home, you may find yourself bidding against other buyers. If the offers are similar in price, sellers will likely go with the offer from the buyer who has a better chance at getting approved. The last thing a seller wants is for the buyer to default on the purchase.
Why Do Lenders Care About Assets?
The main reason that lenders look for assets is to determine whether you have the down payment and meet their reserve requirements. Lenders want to know if you have sufficient funds to make mortgage payments even if you have a temporary job loss because if you do, they will feel more at ease when approving your loan application.
If you can document enough liquid assets for at least 6 months reserves, then lenders may even overlook things such as bad credit and low income because your assets. Some mortgage programs already have minimum cash reserve requirements. As a result, building your cash reserves is an important mortgage application tips to strongly consider
There are even cases where retirees with only social security income are able to qualify for a mortgage because they have a strong portfolio of retirement savings and investments. This is just one example of how documenting your assets can help you to get a mortgage.
Using Your 401k for a Down Payment
We have seen people cash out their 401k balances to use as their down payment to buy a home. We are not tax experts here but this is something you should talk about with your accountant. You could face a significant tax penalty by pulling your money out of your 401k before you reach retirement age.
What are seasoned assets?
Seasoned assets have to do with how long the assets have been in our account. This typically refers to your bank account balances. Lenders want to see account balances be consistent across the statements that you provide. As a result, any recent large deposits may not be considered.
If you received a recent large deposit that will not continue each month, then you should consider waiting a couple of months for that deposit to drop off of the recent statements. Lenders will ask for 2-3 months bank statements.
Asset Gifts from Relatives
If you are low on liquid assets, you may receive a gift from a relative to help cover your down payment and closing costs. Even if you do not need that gift to close the loan, it will add to your total liquid assets on your mortgage application. This could also help with your loan approval.
Asset Based Mortgages
If you have little to no income but have a high level of liquid assets, then you may be able to qualify for an asset-based mortgage. With this type of loan, the lender will use a calculation (based upon your total liquid assets) to come up with the total amount you can borrow.
These types of mortgages are not common and only certain niche lenders have them. They are becoming popular with retired individuals who are receiving little in retirement income but have high levels of liquid assets. You can expect the interest rate on asset-based mortgages to be a bit higher.
How Do Liabilities Affect A Mortgage Application?
We’ve talked a lot about assets, so it’s important to also mention the liabilities because they also impact your ability to qualify for a mortgage. Liabilities are debts that are unpaid.
The most common liabilities on your credit report are:
- Student loans
- Auto Loans – Read [getting a mortgage with a car loan]
- Credit Card Minimums
From a mortgage underwriting perspective, lenders will only look at the liabilities that appear on your credit report. They look at the minimum required monthly payments. Those monthly payments are used in the calculation of your debt to income ratio. Reducing these monthly liabilities will also be an advantage for you in combination with having assets.
Can you get a mortgage with no assets?
The chance of getting a no asset loan is extremely small because of the supreme lending financial crisis of 2008. A true no doc loan for primary residences does not exist anymore. There are creative ways to find a mortgage without having too many assets. An example is detailed in this article about how to get an FHA loan without using your own money.
Is my car an asset that can be used to qualify?
Your car is an asset, but it is not an asset that helps you to qualify for a mortgage. Your vehicles cannot be used as collateral for a mortgage either. There are self-employed individuals who have many vehicles for their businesses. Even though those vehicles may be worth a lot, they cannot use them as a basis to qualify for a mortgage. The same with your personal car.
Are Asset Depletion Loans Available?
There are asset depletion loans offered by various portfolio lenders where they will use your net liquid assets to determine how much you qualify for. Read [Asset Depletion Loans]
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