A critical step in the mortgage loan application process is to verify the sources for your down payment, closing costs and assets, as well as documenting income and debts. The lender uses this step to determine your qualifications as a borrower.
Down Payment & Closing Costs
Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.
Take extra care to document the sources for any monies to be used for the down payment or closing costs.
Acceptable Down Payment & Closing Costs Sources
Cash in a bank account
Mutual funds / stocks / IRA / 401K
Proceeds from the sale of another property
Gift from an immediate relative
Collect information about your personal assets that add to your net worth and help to prove your credit worthiness.
Common Assets Considered in a Mortgage Loan Application
Stocks, bonds, mutual funds, 401K and retirement accounts
Personal property estimate - cars, boats, antiques, jewelry, etc.
Other real estate or property
Income and Employment
The lender will want to confirm your current gross income and have evidence of stable employment. Documentation requirements vary depending upon a number of factors - including the source of income (hourly, salary, salary + bonuses, salary + commission, commission, self-employed, etc.).
Your lender will want to review a list of all your current debts. This along with your credit report will provide the lender with a snapshot of your obligations. The lender will want to confirm that you will not be overextended when the mortgage payment is added to your current debt load.
The amount of documentation of your assets that you provide can affect the mortgage interest rate that the lender provides.
Documenting assets can be done by providing bank statements, retirement account statements, and verification of deposits. Lenders require these documents to source downpayments and to determine the amount of reserves a borrower possesses.
Lenders prefer documenting assets with copies of traditional paper statements. However, online bank statements are becoming increasingly popular. If online statements are used as a mean of documenting assets, in addition to the account balance, the statement should include the account holder's full name, address, account number, and date.
One method of documenting your asset can be provided by requesting verification of deposity through your bank. However, each bank has different policy and turn around time for filling out the form. Always find out the method first, and be ready to submit the document upon the loan officer's request. If your loan officer is going to request it himself, let your loan officer know your bank's policy on filling out the VOD (verification of deposit) form.
When documenting assets most lenders will generally require the assets to have a minimum of 2 months seasoning. This means that the lender will want to see that you have had the money in said account for at least 2 months. If the lender sees a big deposit made to your account within the last 2 months they will require to see the source of this money. Two months Seasoning is generally required for down payment money, reserve money, and closing cost money.
If you are not able to source your money for some reason there are loan programs that will allow you to either state your assets or there are loans where assets do not need to be seasoned.
You may qualify for a better loan program if you can document your assets. Lenders will look much more favorably at your loan application if you can show a large amount of assets.
When you can document your assets, more options and flexibility are available then if assets could not be verified.
Documenting Assets which are liquid can generally be handled with several months of account statements from the bank, brokerage or depository where the assets are held.