For most mortgages, the income is the most important aspect of qualification and approval. The lender wants as much assurance as possible that your income reaches a certain level and that this income is likely to be maintained. Seems obvious, right?
Your income often forms the foundation of mortgage approval. But assets, including retirement accounts and physical property, can also be used. They can either supplement your income, increasing your borrowing power, or they can be used entirely as your income.
While it may not be the right solution for everyone, it’s clear that using assets for a mortgage can create the mortgage you need for a world-class home.
Using Assets for a Mortgage? Here’s What You Need to Know
Using assets for a mortgage can seem complex, and while we can’t cover all the details in one single article, here are a few of the most important points. If you want to learn more, feel free to contact our team at any time.
What Assets Can be Used?
First of all, you must understand what assets can be used to supplement or create the income listed on your application. Essentially, anything of value could be used, but these are a few of the most common assets that are used during a mortgage application…
If you have a significant amount of cash in the bank, cash that won’t be used for the downpayment and closing costs, it could be used as an asset on your application. Any readily-available cash sitting in a savings or checking account could be utilized.
It’s not just cash that can be used, but cash equivalents as well. These can include money-market accounts, certificates of deposit, and other account that are held by financial institutions.
Retirement and Investment Accounts
Retirement savings in a 401(k), mutual funds, or other accounts can also be used. Pension payments, IRAs, and bonds can also be used towards your loan.
There is an established system for using these assets towards your loan. (See “How to Use the Assets” below.) In many cases, these accounts are near or above a million dollars, so they can provide a significant boost to your application. In fact, it’s not uncommon for mortgage applications to be approved based entirely on retirement accounts, with no traditional work income used.
While non-physical assets are more common, many borrowers also use high-value physical properties to qualify for a loans. These can include a variety of assets, including cars, RVs, jewelry, or expensive artwork. Having a detailed breakdown of these assets, including their expected value (backed by appraisals if possible) will increase your chances of landing the high-quality mortgage you deserve.
Equity and Ownership
If you have any ownership or equity in a business, you may be able to use this ownership as well. Ownership in a business can come in a variety of forms, including retirement accounts, stocks, and other ownership types. This one is slightly more complicated, so talk with a lender about using ownership assets to take advantage of this option.
How to Use the Assets
Using assets can be complicated, and different types of assets can be applied at different levels. By this, we mean that some assets can apply 100% of their value to the application, while others can apply a smaller percentage, such as 70%.
Retirement assets provide a fine example. IRAs and 401(k)s provide a consistent source of income for retirees, but because the sum total is invested in the stock market, you can’t use 100% of the value.
This is because the stock market, as we all know, is subject to ebbs and flows. Yes, it usually goes up, but it can also go down. To reflect this risk, you can only use about 70% of the value, and this number can drop to 60% if there is an early withdrawal.
To use the assets, you’ll need to verify their existence to the lender or lending agent. You can do this through account statements, appraisal letters, and any other documentation that verifies the total value.
Some lenders may require what’s known as an asset statement. This is a document that will provide a statement of value, and verify where and how certain assets were acquired. To use these assets, provide as much information as possible. Find any statements and documents that will verify the value and you should be able to use the assets.
If needed, you may also need to have the items appraised. For example, it may not be enough to simply claim a boat is worth $50,000; you may have to have the boat appraised by a trained professional before this item can be used.
Should You Use Extra Assets, Even if You Don’t Need To?
All of this creates an important question. Should you use assets? If you have no income but a high net worth based on retirement accounts, then the answer is probably “yes.”
But what if you don’t need to use the assets? What if you can qualify without them? Then the answer is more complicated.
Using assets can increase your borrowing potential, allowing you to purchase a large or more luxurious home. However, any assets you use towards the loan may be subject to seizure by the lending institution. Therefore, you need to be extremely careful when using assets.
Providing the Guidance You Need When Using Assets for a Mortgage
If you want to learn more about using assets for a mortgage, contact our team today. We’ll show you the advantages to using assets, all while making sure you completely understand the risks. In the end, this will allow you to make a well-informed, confident decision for your mortgage.
You deserve the best loan possible, so whether you are purchasing your first home or a vacation property, let us help you discover if using assets for a mortgage is the right choice!
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