When you’re applying for a mortgage, you shouldn’t underestimate the important role of including your assets. Making sure you list all your assets can affect the type of mortgage you get, as well as your interest rate.
When lenders are assessing applications for a home loan, they look at your credit score, debt and income, and also your total net worth. Your net worth is how much money you actually have. To calculate your net worth, the lender will subtract the debts you owe from your total assets. Your assets are relevant because the higher your net worth, the more likely you will get approval.
Your lender will consider your assets to make a determination of how you’d make your payments if you lost your job, for example, and whether you could float your expenses for a few months.
Below, we go into more detail about what you should know as far as assets and their role in the process of applying for a mortgage.
What Are Assets?
Assets are things you own with a monetary value.
We can usually group them into three broad categories—cash, cash equivalents, and property. Your total asset value will usually go up as you move through life. Your salary and income information are part of your mortgage application but aren’t an asset.
Cash and Cash Equivalents
Cash is anything you have on hand that’s already liquid. For example, if you have money in a checking or savings account, this would be an asset. Cash equivalent assets might include what you have in certificate of deposits or money market accounts, for example.
Your physical assets are things that theoretically if you needed to, you could sell for funds that you would then use to qualify for a home loan or make payments on it. This could include houses, cars, jewelry, art, RVs or boats. If you’re going to use a physical asset to qualify for a mortgage, you have to sell that asset before you close.
A nonphysical asset can include things you have that have value but aren’t liquid and don’t have a physical presence. A house is a physical asset. An IRA or stocks are nonphysical assets. Yes, you can make them liquid, but they’re not immediately available.
There’s a fine line between nonphysical assets and liquid assets. A liquid asset can be converted into cash very quickly, so a stock you can trade and get cash from right away is a liquid asset. A nonphysical asset might be a retirement account, by contrast. Yes, you can get some money from it, but again, it can be more complicated to do so.
Fixed assets can include furniture and some types of real estate. The value can change over time, and you can sell them for cash, but it takes longer.
If you have ownership in any businesses, like mutual funds, they can be equity assets.
As you might have noticed, there is often overlap in the categories of assets. What’s important is that you include an exhaustive list when you apply for a mortgage.
Which Assets Do Lenders See As Most Important?
In the eyes of a mortgage lender, cash and cash equivalent assets are most important. You could use these liquid assets quickly if you needed to pay your mortgage. Physical assets are also somewhat important to a lender.
If you have items like artwork that you aren’t sure of the value of, you may need to work with an appraiser.
Do Lenders Verify Your Assets?
Keep in mind that if you list any assets on your mortgage application, your lender will verify them and make sure everything you provide is correct. Your assets need to be traceable, and they need to be verifiable as your own.
As far as being traceable, if you have a big cash deposit in your account and there’s no resource to trace it back to you, a lender might have questions.
If you’re overwhelmed about including assets on your mortgage application, you might want to talk with a financial professional. They can help go over your assets and make sure there aren’t any red flags that would prevent you from being approved.