Documenting Your Assets - Verifying Your Down Payment

When buying a home, it is not enough to just "come up" with the money. With the exception of "no asset verification"
loans, lenders want to verify where the money comes from. If you can document the funds comes from your personal
savings, the lender is more confident of your strength as a borrower.

In addition, if you can verify you have additional assets that are not needed for the down payment, it is important to
document those, too. Additional assets are "reserves" you can draw upon during times of trouble, such as
unemployment, medical emergencies, and similar occurrences. Additional assets can also help to document that you
have a history of saving money, which makes you a more dependable borrower.

It is extremely important to completely document the paper trail of any funds you use for down payment and closing
costs. The sections below provide guidance on both verifying assets and documenting them as a source of your
down payment.

Checking, Savings, & Money Market Accounts

The quickest and easiest way to document funds in your bank account is to provide your lender with copies of your
most recent bank statements. Most lenders request two months bank statements, but some still ask for three. Some
lenders still send a "Verification of Deposit" to your bank in order to determine your current bank balances and
average balance for the last two months. However, that is the old way of doing business and most lenders nowadays
prefer to have bank statements.

If the money you are using for the down payment and closing costs has been in the bank for the entire period
covered by the bank statements, you're fine. These are known as "seasoned funds." However, if your statements
show any large or unusual deposits the lender will ask you to explain them and document their source.

Stocks, Bonds, Mutual Funds, etc.

Most of those who own stocks get a monthly or quarterly statement from their brokerage. You will need to supply
statements for the most recent sixty or ninety days in order to document these assets.

Though it is rare nowadays, some people actually have stock certificates instead of having a brokerage account.
When this is the situation, make copies of the certificates and provide those copies to your lender. You might also
want to supply tax records to indicate you have owned these stocks for some time.

If part of your down payment will come from the sale of stocks and investments, you will need to keep all
documentation that applies to the sale. Provide these copies to your lender as well.

Gifts

Especially when buying a first home, some borrowers need help coming up with the down payment. This help should
come in the form of a gift from a close family member. Lenders will require the donors to sign a special form called a
"gift letter." The gift letter states the relationship between the parties, the address of the purchased property, the
amount of the gift, and sometimes the source of the funds used to make the gift. The gift letter also clearly states
that the funds are a gift and not required to be repaid.

With most lenders, the donor will have to also provide evidence that they have the ability to make the gift. This can
be in the form of a bank or stock statement to show they have the funds available. You should also make a copy of
the check used to make the gift and keep a copy of the deposit receipt when you deposit the gift funds into your
bank account or escrow.

401K or Retirement Accounts

It is important to provide documentation about your retirement accounts or 401K programs because this is another
asset you could draw upon as reserves in case of a problem. It is also another way to show you have a savings
history. Just provide a copy of your most recent statement to your lender.

Many people use these accounts as a source of funds for their down payment, too. Some employers allow you to
"cash out" a portion of the 401K and some allow you to borrow against it. Be sure to keep copies of all paperwork
involving the transaction. If they cut you a check, be sure to make a photocopy of that, too, including any receipt for
deposit into your personal bank account.

If you are borrowing against your 401K, some lenders will count this as an additional debt to go along with car
payments, credit cards and other obligations. This may seem kind of silly because you are borrowing your own
money, but from the lender's viewpoint it is still a monthly obligation that you must come up with and should be taken
into account. If you are "tight" on your debt-to-income ratios in qualifying for a home loan, this could be an important
consideration. It may affect whether you choose to cash out the account and pay any tax penalty, or simply borrow
against it.

Employers

Some companies provide down payment assistance for their employees. They may feel that Homeowners are more
stable and reliable employees, or that providing down payment assistance fosters an environment of higher morale
and loyalty to the firm. Just make copies of all the paperwork, including a copy of the check and the receipt when
you deposit the funds into your personal bank account. It is important that these funds do not require repayment.

Savings Bonds

If you have Savings Bonds, they are a financial asset, too. Since you hold the actual bonds in your possession, the
easiest and best way to verify them for your mortgage lender is to make photocopies of them. If you choose to cash
them in for down payment or closing costs, you should do this at your local bank. Be sure to keep copies of the
paperwork the bank provides because that will establish the current value of the bonds and show that you received
their cash value.

Personal Property - Cars, Antiques, etc.

Personal property includes automobiles, vehicles, boats, furniture, collections, heirlooms, antiques, art, clothing, and
practically everything you own except for real estate. The mortgage application asks you to estimate the value for
these items.

The larger the loan amount, the more important it is for you to provide details on your personal property. This is
because larger loans usually indicate larger incomes, and lenders check to see if your personal property matches
your income. If it does not, this sends a "red flag" to the underwriter and they take a closer look at your application.

You are not required to document the value of personal property unless you intend to sell them to come up with your
down payment.

Selling Personal Property

For those Homebuyers who do sell personal property in order to come up with their down payment, the verification
process can be arduous. Lenders are much stricter about documenting this method of coming up with your source
of funds.

Selling a car is perhaps the easiest to document. First, you need to photocopy the registration that shows you
actually own the vehicle. You will have to provide a copy of the page in the "Blue Book" that shows your model and
its value. Then you need to photocopy the bill of sale showing the transfer to another individual and a copy of the
check used to purchase the vehicle. Do not get paid in cash because that makes it impossible to show you actually
received the funds. Make a copy of the receipt when you deposit the funds into the bank.

Other types of personal property are more difficult because you have to show that you actually own the property and
that it actually has the value that you sold it for. This is a little harder to do for most assets than it is for automobiles.

If you have records to show you purchased the property, that would be helpful. You could also provide an old
inventory that documents ownership. To determine value, you may have to contract with an independent appraiser
or a specialist who has the knowledge for that particular type of property.

If you cannot document the item's value, the lender will not view the sale as an acceptable source of funds. Just like
selling a car, you have to prove you own the item, make a copy of the bill of sale, copy the check used to purchase
the item, and make a copy of your receipt when you deposit the funds into your bank.

Are you ready for the AgorillaREALTOR experience? Remember: "It's a jungle out there; why monkey around when
you can hire Agorilla"  Let's get started!

Reference: Article by CLTA. Retrieved from iHouse, 10/24/08. Written in whole.
Documenting Your Assets - Mortgage Information
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