Hello world!
April 3rd, 2007Welcome to WordPress. This is your first post. Edit or delete it, then start blogging!
Reserves and Assets
Contributed Articles
Reserves and Assets - When applying for a mortgage, whether you fall into the conforming or sub-prime lending criteria, many lenders require that you at least state, and may even ask you to verify reserves and assets held in liquid accounts.For certain types of loans, sometimes a certain amount of reserves are required. Reserves are liquid assets that you have in some type of account. They can be a in a 401k, IRA, Checking/Savings account, Mutual Funds, Money Market Account, stocks, bonds, etc... For example many lenders that offer 100% financing will require a borrower to have 2 months reserves in order to qualify for the loan. 1 month reserves is equal to your Principal, Interest, Taxes and Insurance Monthly Mortgage Payment.
The more risky the loan is for the lender the more reserves they may require. For example with most 100% financing programs for investment properties lenders require a minimum of 6 months worth of reserves and often as much as 12 months of reserves.
Often there is a "seasoning" requirement on these reserves. For example, if you need 2 months' reserves, and you go out and put the money in a bank that day, it may not be accepted by the lender. The funds must be "seasoned" in your account for at least a few months. There are also lenders who do not require the money to be seasoned. Check with your loan officer to find out all your options.
Substantial Liquid Assets, including cash in checking or savings accounts, certificates of deposit, accessible qualified & unqualified retirement accounts, and exchange traded securities may be utilized as collateral or debt service reserves for your mortgage.
Documenting Assets -
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
Assets
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
Life insurance
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.).
Debts
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.
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.
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.
Stating your income and assets - Some mortgage programs allow you to "state" your income. For instance, if you are a small business owner, and your tax returns dont show all the income you receive, you can "state" your income to the loan officer and its not verified. The income stated must be reasonable for the industry.
This type of program is good for any type of job that has difficult to document income. It is often used for jobs where cash tips are involved. Many people who have jobs where they earn regular pay and cash tips, live off of the tips they receive. Since that money is never tracked, and the regular pay usually isn't enough to qualify they can use this type of stated income program.
A SISA loan is one where lenders allow you to "state" your income, as well as "state" your assets.
A good time to use a stated income and stated asset type loan is when you have a job that you have had for less than a year and you receive a considerable amount more money than you received at your previous job or you now receive commissions and/or bonuses. Many lenders will not allow you to use this commission/bonus income because you do not have a history of receiving it or they will not allow you to use all of your new salary because they are using an average of your new income and your previous year's income. Because of this, a stated income loan will work well because you can state how much money you truly make to help qualify you for the loan instead of dealing with the lender who might not normally accept all of your income. There are many other examples of good situations and scenarios that may be helpful to use a stated income stated asset type loan and this was just one example of many.
Some state income loans require the borrower to sign a 4506 form. The 4506 form authorizes the lender to request original tax returns from the IRS. The lender will only request original tax returns if the file is being audited or there is suspicion of fraud.
Some lenders have "stated income" programs where the rate is the same as "full documentation" programs.
The benefit of doing a "stated income" loan in this situation is that it requires less paperwork form the borrower.
With some mortgage programs, you have to have a higher credit score to use stated income than if you were to provide full documentation. If your score is too low, you may be disqualified from such programs or the interest rate may be much higher. Always take care of your credit.
SISA loan guidelines are more restrictive than those available on SIVA (Stated Income but Verified Assets) mortgage loan programs.
This post has been filed under : sisa, nina, siva