Lenders are not only permitted to ask you for information about your assets when you apply for a mortgage but they are required to according to industry guidelines. This requirement applies regardless of if you are required to pay closing costs or if you choose a no cost mortgage program.
To qualify for a mortgage, lenders are required to verify your ability to afford the monthly payment and eventually repay the loan. While this evaluation focuses primarily on your monthly gross income and debt expenses -- also known as your debt-to-income ratio -- your assets also play a role in the analysis.
The greater your assets or more money you have in the bank or in investments, the more likely you are to pay back your mortgage and the less likely you are to default on the loan. So the lender’s obligation to review your assets is not only about paying closing costs and other upfront expenses but also about your financial wherewithal and ability to afford your mortgage over the long run.
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There are other, more specific reasons why a lender reviews your assets when you apply for a mortgage, including the following:
To verify the source of funds for your down payment. Lenders review your assets to confirm that the money you use for your down payment is from your personal funds or a gift and not a loan.
Your mortgage program has a reserve requirement. Some programs require borrowers to hold one-to-twelve months of total housing expense -- your mortgage payment, property tax and homeowners insurance -- in reserve when your loan closes. If this guideline applies to you, lenders review your assets to make sure that you have sufficient funds to meet the reserve requirement.
Your assets are a source of income. If you earn income from your assets through interest, dividends, distributions or other regular payments, lenders review the assets to determine the stability and duration of the income. Lenders are required to verify that you have received the income for a certain period of time and that the income is expected to continue for at least three years for you to use it to qualify for the mortgage.
To review your assets, lenders typically request your bank statements and any brokerage or investment account statements for the prior two months. Lenders may request additional documentation and financial information depending on the specific assets you hold.
If you feel like the lender is requesting information that is overreaching or unnecessary you can ask the lender for an explanation. In most cases the lender has a specific reason for asking for a particular document but it does not hurt to ask for clarification.
To summarize, lenders need to understand your complete financial profile, including your assets, to determine your ability to qualify for and ultimately repay your mortgage. Lenders apply this guideline for all standard loan programs including no cost mortgages.
"B3-4.4-01, Asset Verification." Selling Guide: Fannie Mae Single Family. Fannie Mae, April 3 2018. Web.« Return to Q&A Home About the author