Having sufficient liquid assets is one of the most important qualifications to take out a favorable mortgage. You need an adequate amount of cash to put down enough money to reduce the risk your lender has to absorb. After all, you’ll be hard-pressed to find “zero money down” mortgages in Connecticut these days. These loans were partly responsible for popping the previous American housing bubble, which results in a global financial crisis.
Apart from serving as a bargaining chip to ask for low mortgage rates in Guilford, you need plenty of assets to cover closing costs. Also, you need money for reserves to act as a cushion to sustain mortgage repayment when you lose a source of income down the road.
Then again, having enough liquid assets is different organizing them. Before you negotiate with a lender, do the following:
Use As Few Accounts As Possible
Funds available in savings, checking, retirement, brokerage, and money market accounts, as well as certificates of deposit, are what most lenders consider an asset. For the sake of simplicity, put all of the funds in one specific account. This move will help you document your personal cash flow more easily and paint a picture of your net worth more clearly.
Swell Your Coffers Months Ahead
Seasoning your assets is good practice. Not touching most of your money for a long time sends a positive signal to lenders. It shows that you don’t need a lot of cash to manage your regular expenses, which every capable mortgage borrower does.
Avoid depositing unnaturally large funds in your account shortly before your loan application. It will create suspicion and trigger the underwriter to ask for an explanation letter from you. You only need to provide your last two bank statements, so deposit lump sums coming from other sources 60 days before talking to a lender.
One of the few exceptions to the two-month rule is a monetary gift from a qualified donor. Actually, a lender may even want you to receive gift funds right before closing.
Provide Verifiable Proof
Lenders hate untraceable funds the most. You need to prove that your cash didn’t appear out of thin air to establish your creditworthiness and repayment capacity. This is why you can’t use your mattress money unless it was deposited to your account for more than 60 days before the application.
Mortgage lenders rely on a paper trail to determine your liquid assets didn’t come from windfalls and other loans. These types of funds pad your savings and create a false good sense of financial health.
When it comes to gift funds, lenders need to see documents showing where a donor get the money. Whether the cash came from the sale of a vehicle or stocks, the donor only needs to prove that the funds were acquired through legitimate means.
Demonstrate a Positive Pattern
When all is said and done, a lender only wants to see that you have an effective savings pattern in place. Ideally, your account history should show little to no activity for the past two to three months. Aside from seasoning funds in your account, you can also use consistent payroll deductions to show that you’re responsible enough to buy a property.
Proper asset organization takes time, effort, and prudence. If you do it right, you’ll be one step closer to convincing a mortgage lender that you’re a reliable, low-risk borrower.