Assets and Reserve Requirements

assets mortgage

When applying for a mortgage, a mortgage broker or lender will likely inquire about your assets, and more specifically, your liquid assets.

They’ll want to know what you’ve squirreled away in order to come up with a down payment, pay closing costs, and make monthly mortgage payments going forward once you close your loan.

Unless you’re relying on a documentation type that doesn’t require the verification of assets, it’s very important to make sure you’ve got plenty of assets in your personal bank accounts.

Along with that, you’ll want to ensure those assets are “seasoned” for at least two months (60 days) in most cases.

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Season Assets Two Months Before You Apply for a Mortgage!

  • It’s important to have your assets in a verified account
  • At least two months prior to applying for a home loan
  • Because banks and lenders generally ask for your two most recent bank statements
  • To verify your assets for down payment, closing costs, and reserves

Many prospective homeowners and those looking to refinance make mistakes when handling their assets prior to a mortgage transaction.

They may falsely assume they can just shuffle some assets from a friend or family member’s account into their own bank account without incident, then use them to qualify for a mortgage.

Unfortunately, this doesn’t fly with many banks and mortgage lenders because the money isn’t properly sourced or seasoned.

Banks and lenders want to ensure the money is truly the borrower’s money, and in the borrower’s account for several months before they’ll accept those assets as their own. If it just appears out of thin air one day, the lender won’t feel very comfortable about the legitimacy of those funds.

For example, attempting to use mattress money for your down payment likely won’t go over well. You might think, why not!? It’s my money, my hard-earned cash, why can’t I use it?

Well, the lender doesn’t know where that money came from if it just appeared in your bank account a couple days ago. Could you have taken out an undisclosed loan, borrowed money from someone, or acquired funds another way that could make you a riskier borrower than you appear? Sure and absolutely.

This is why mortgage lenders typically want to see that any assets used in the mortgage transaction are seasoned for at least 60 days. Put simply, this means providing two months of bank statements that show the funds being present in the account for that entire duration.

Why 60 days? Well, lenders will generally ask for the two most recent bank statements, which cover a span of 60 days, give or take. So anything that occurs prior to those two months of bank statements won’t be revealed to the lender.

For example, if you plan on using a specific bank account to verify your assets, you may want to move any necessary funds into that account 60-90 days before you apply for a mortgage. That way the money will be considered seasoned and the average daily balance of the account will be reflected as well.

The two most recent bank statements won’t show those funds transfers if they were completed 60+ days earlier, in a prior statement period.

And if the funds have been in the account for 60+ days, you shouldn’t need to source them beyond the bank account they’re in.

Conversely, if you move a sum of money into a bank account less than 60 days before you apply, the lender will see that deposit on the bank statement and likely scrutinize it.

And more importantly, ask for the source of those funds. If you don’t have a good answer, your loan application could be in jeopardy.

This is why seasoning assets is so important. Once they’re seasoned in a verifiable account, they are considered sourced and should be accepted without further review.

Ultimately, lenders want to verify that the borrower has established a savings pattern, and that the assets are sufficient to support the mortgage payment. Or in the case of anything less than full doc, support the stated income.

They ask that they be seasoned so the borrower doesn’t falsely inflate their financial position to obtain a lower mortgage rate, or to borrow more than they can truly afford.

Large Deposits and Mortgage Approvals Don’t Mix!

  • If your bank statements show recent large deposits
  • Expect the underwriter to ask for a letter of explanation
  • This is yet another reason why it’s often better to transfer any necessary funds
  • Several months before you apply for a mortgage

As mentioned, just because you have the money in your account doesn’t mean you’re good to go. This is especially true if you’ve made a large deposit or two recently to pad your savings.

For example, if you want to look better on paper prior to applying for a home loan, you might think it wise to transfer $10,000 into your checking or savings account.

That way you’ll have the amount necessary to cover down payment, closing costs, and reserves.

But wait, it’s not that easy. The underwriter is going to see at least your last two bank statements and that deposit and start asking questions if it looks unusual.

And by unusual, I mean a large deposit relative to your overall balance or savings history.

If you only had $1,500 in that account, then all of a sudden dumped $10,000 into it, it will surely be scrutinized, especially if you only make $50,000 a year in salary.

Now this is totally fine if you have a legitimate paper trail to back it up. But if you borrowed that money, or simply can’t document it properly because it was lying around your house, it could be grounds for denial.

To avoid this unnecessary attention, you’ll either want to move the money several months in advance of your home loan application, or simply leave it where it’s at if it’s in a suitable account.

Even moving money from one verifiable account to another can raise new red flags if the underwriter sees stuff they don’t like in either account. Put simply, the more accounts that are involved, the more documentation requests, and the greater potential for trouble.

In a perfect world, hopefully you have all the money you need in a savings account that has had very little to no activity in the past 2-3 months. That way no questions will be asked, hopefully!

Asset Reserve Requirements for a Mortgage

  • Aside from down payment funds and closing costs
  • Mortgage lenders may also require reserves
  • Which are additional funds to cover monthly housing payments
  • To ensure you have the capacity to make your payments going forward

If you get your hands on a rate sheet, or talk to a bank or mortgage broker, they’ll usually tell you how many months of reserves you’ll need to verify assets and qualify for a mortgage.

Asset requirements will be defined in terms of PITI (Principal Interest Taxes and Insurance), meaning you’ll need enough money to pay for “X” amount of months of mortgage payments including principal, interest, taxes and homeowners insurance.  And mortgage insurance, where applicable.

Reserve requirements will vary from bank to bank, and from mortgage program to mortgage program, but you can get a good idea of what you may need to provide for different property types.

– Owner-occupied residences typically require two months PITI in reserves, but may ask for up to six months. In some cases you might not need any though!

– For second homes, reserves can range between three to four months, but again, can be higher.

– On non-owner occupied properties, otherwise known as investment properties, reserves are usually six months PITI or more.

Even if you apply for a no down payment mortgage, reserves may still be required to show the lender you’re able to make monthly payments.

Reserves Needed for Specific Types of Loans

  • The amount of reserves necessary will vary by loan type
  • And by property type (such as number of units)
  • Typically need at least 2 months of reserves
  • But could be as high as 12 months or even more!

For Fannie Mae and Freddie Mac loans (conforming), reserve requirements vary based on credit score and LTV, along with property type.

For example, no reserves may be required for a 1-unit primary residence, whereas two months may be required for a second home, and six months for a 2-4 unit primary residence or investment property.

Ultimately, they can range from as little as zero months to as much as 12 months, depending on the scenario.  As a rule of thumb, more risk requires more reserves.

There is no reserve requirement for FHA loans on 1-2 unit properties. However, 3-4 unit properties typically require three months of PITI.

For USDA loans, no reserves are required, but they can be used as a compensating factor if necessary.

For VA loans, there isn’t a reserve requirement unless it’s a 3-4 unit property and you’re using rental income to qualify, at which point six months reserves are required.  Additionally, three months of reserves are required for each rental property owned that is not secured by a VA loan.

For jumbo loans, reserve requirements can vary tremendously, from as little as six months to several years, depending on how large the loan is.

Allowable types of assets:

  • Earnest money deposit
  • Checking/savings/CD/money market accounts
  • Verification of Deposit (VOD)
  • Business accounts
  • Stocks
  • Bonds
  • Mutual funds
  • IRA/401k and other retirement accounts
  • Gift Funds/Gift of Equity
  • Sale of assets

Ineligible types of assets:

  • Cash on hand
  • Undocumented funds (mattress money)
  • Sweat equity
  • Unsecured borrower funds
  • Illegally obtained funds
  • Cash proceeds from a cash out refinance
  • Lender contributions
  • Seller contributions
  • Funds that haven’t been vested
  • Stock held in an unlisted company

Some useful tips regarding using assets for a mortgage:

– Move money into a checking or savings account the minute you start looking for a property. This will allow those funds to be seasoned, and thus won’t require additional sourcing.

– Try to limit any activity (deposits, withdrawals, purchases, transfers) in said account(s) for the preceding months leading up to the mortgage application to avoid any unnecessary conditions or letters of explanation.

– Even if the mortgage company initially asks for bank statements, ask if a VOD will suffice. A Verification of Deposit (VOD) from your bank provides the overall balance of your account and your average balance based on the past two months. This may be better than providing bank statements, which could show payroll and other information that you may not want to disclose.

– You may also use retirement accounts, but lenders typically only consider 70% of the total, so factor that in to ensure you have enough to cover reserves. *This can vary based on your individual lender’s guidelines.

– If you plan on using business accounts for assets, you’ll likely need to be the 100% owner. Although if you own only 50%, some lenders will accept a CPA letter stating what percentage the borrower has access to, and that the use of those funds won’t affect the business negatively.

– If you sell personal assets, make sure you save receipts to prove the source of funds. Acceptable items usually include automobiles, coins, art, and antiques.

– Generally you can use money from a joint account for reserves and down payment, but you’ll typically need to provide a letter from the other account holders explaining that you have full access to the funds.

– If you have any recent large deposits (usually defined as one that exceeds 50% of total monthly income) in your accounts, they may be scrutinized and/or unavailable for underwriting purposes depending upon their size.

Tip: At the end of the day, make sure assets are in personal accounts and seasoned long before applying for a mortgage! And do your best to limit account activity during that time. It makes life easier for everyone.



78 Comments

  1. Ziegan4 July 19, 2017 at 11:02 pm -

    I have a conditional approval for an FHA mortgage loan. I deposited cash in my account that the underwriters are requesting a paper trail for. This money was from repayment of a personal loan that I gave to my boyfriend in 2014. Any advice on how to handle this situation? Thanks in advance!

  2. Colin Robertson June 29, 2017 at 9:01 am -

    Timeka,

    You generally don’t want to touch that reserve money until the loan funds to avoid any extra conditions or scrutiny.

  3. Timeka June 28, 2017 at 8:23 pm -

    Hi Colin im in the process of closing in a few days and my lender requested 2 months of reserves which is in my bank and the underwriters approved my loan how long do my money have to sit in the bank before i can use it

  4. Colin Robertson June 25, 2017 at 10:30 am -

    Brad,

    You may want to look into construction financing and/or construction-to-perm financing to determine how much cash you’ll actually need for down payment and reserves. You won’t be nervous if you prepare and know exactly what you’ll need to get approved ahead of time.

  5. Brad June 25, 2017 at 8:28 am -

    My wife and I are looking to build a house on two acres we own. We have recently paid completely out of debt(vehicles and credit cards), and have 50k or so in a 401k and 10k in other dividend reinvesting stocks. We are starting to funnel cash into checking account now that debt is paid off. We are both under 30 years old and both have 800 credit scores, yet we are nervous about going to the bank to start the process of getting a mortgage to build a house. Should we be? Would our land or 401k/ stock accounts offset our lower cash in accounts?

  6. Colin Robertson March 27, 2017 at 12:52 pm -

    Lou,

    You may want to determine what types of loans you can qualify for and see if reserves are going to be an issue for sure, then compare costs…FHA forces mortgage insurance on its borrowers, whereas you might not need it with conventional financing.

  7. Lou March 27, 2017 at 12:40 pm -

    Colin, given that the reserves are in question, is FHA a better way to go? I know there are upfront costs plus M&I.

  8. Colin Robertson March 27, 2017 at 9:02 am -

    Lou,

    If you have other financed properties, you will likely need to have X months of reserves for each or they may require a percentage (2-6%) of the aggregate unpaid principal balance of those properties.

  9. Lou March 27, 2017 at 8:02 am -

    Colin, when doing a cash out refinance, do you need to have enough PTI for all existing properties or just for the one you are refinancing?

  10. Aaron March 22, 2017 at 5:15 pm -

    Colin,

    I am interested in purchasing a single family home as an investment property. I currently do not have the 20% for the down payment buy I have excellent credit and I am interested in using a personal loan for the down payment. I understand that you cannot use borrowed money for a down payment on an investment property, but I was wondering what if you took out the loan for a “vacation” or something else, let it sit for 6-12 months or so, and use it for the 20% down payment. I understand this will affect my debt to income ratio, but as long as the numbers work will I be okay? From my understanding the underwriter only wants 2-3 months of bank statements and the balance prior to that isn’t in question. Or does the mortgage underwriter go back and see that some of my down payment may have come from that personal loan? Any advice would be greatly appreciated, thank you.

  11. Colin Robertson March 5, 2017 at 10:52 am -

    Kelly,

    The 401k loan should be considered seasoned regardless of when it’s transferred to your checking, but the lender will need to see the paper trail to ensure those funds actually arrived via the 401k loan and not an unacceptable source. It doesn’t hurt to run this process by your lender to avoid any hiccups.

  12. Kelly March 4, 2017 at 3:18 pm -

    Hi, we are in the process of purchasing a house and are planning to use a 401K loan for the down payment (FHA loan). We are planning to take out the maximum amount allowed and should have some money left from the 401K that we would like to use for the appraisal. My question is – if using a 401K loan, does it matter when we transfer the funds into our checking account? I’ve read about funds being seasoned, but so far all the money is still sitting in the 401K. Can we transfer at any time as long as we provide proof that the funds came from the 401K? Or do we have to wait until closer to closing to transfer funds into checking?

  13. Colin Robertson February 15, 2017 at 3:25 pm -

    Matt,

    In many cases it can all be in the form of a gift if 80% LTV (20% down) and a one-unit owner-occupied property.

  14. Matt Malec February 10, 2017 at 1:01 pm -

    Hi Colin,

    If someone is putting 20% down on their primary residence on a conventional loan, how much of it must be their own funds and how much can be a gift?

  15. Colin Robertson December 13, 2016 at 10:38 am -

    Hannah,

    It sounds like you have sufficient assets, but an income shortfall? Might be able to qualify using assets where they take the total and divide over 360 months (mortgage term). Both Fannie and Freddie offer something like this, but you’ll probably want to work on your credit as well to be a strong candidate.

  16. Colin Robertson December 13, 2016 at 10:34 am -

    Hi Ruth,

    You’d probably want to get your credit score up a lot higher first to ensure you get the lowest rate and qualify for conforming programs that require 620 minimum scores. The part-time work would need to be ongoing with history so the lender knows you’ll continue to receive it. And you’ll need to clear enough to keep your DTI at/below the maximum once your total housing payment is factored in. May want to speak with lenders/brokers to run a quick pre-qual to see if it’s a possibility, within reach, or nowhere close.

  17. Hannah December 12, 2016 at 6:23 pm -

    Why is it that I can have over $150,000 and fair credit but cannot secure a mortgage? I received a personal injury settlement that is handled by a financial advisor and he sends me the amount I need to live on monthly and I can call and let him know when it’s time to pay tuition or if I had to go the emergency room, etc. This past summer I was told it was credit problems. I fixed the credit problems and now I am being told that my monthly disbursement isn’t income and that unless I put half of my money into an annuity I don’t meet the FHA requirements, and that I cannot qualify for a USDA loan because of the fact I have so much money. I am so tired of renting and throwing away my money but it is also a very stupid financial decision to pay for a house in cash when I make a decent return on my financial portfolio. Please, tell me how I can purchase a home. I even have the house I want to buy and have discussed it with the owners. I just need a mortgage.

  18. Ruth December 12, 2016 at 3:57 pm -

    Hi Colin,
    Do you think there is any possibility of me qualify for a home loan?
    I would like to purchase a $90,000 condo/coop. I work par-time making $16,000/yr. I have 25 thousand in savings. I have no debt or credit cards, but my credit score is below 600.

    If I were elegible, how long do you think it would take me to move into a new home if I started the process today?

    Thanks for being so attentive and helpful to all your web page visitors.

  19. Colin Robertson October 19, 2016 at 8:07 am -

    Patrick,

    They might be asking for all your asset documentation and assuming you have a pension/401k/etc. If you don’t have one there won’t be any related documentation.

  20. patrick October 19, 2016 at 2:38 am -

    why does my mortgage company need information about my pension. I do not have a pension loan out or am I using any money from my pension towards my potential house

  21. Colin Robertson October 3, 2016 at 1:48 pm -

    Moe,

    You’ll have to run it by your loan officer and/or underwriter to be sure…

  22. Moe October 1, 2016 at 3:32 am -

    Hi,

    I was originally asked to have one month’s rent in reserve for my mortgage. But now I am asked to have 3 months. I have an ESOP profit sharing account with my employer which I cannot withdraw funds from until I either leave the company or retire. Would I be able to use the amount in the ESOP profit sharing account for my reserve requirementS?

  23. Colin Robertson September 12, 2016 at 5:18 pm -

    Joleen,

    Not sure what will happen to them, sorry to hear that happened to you.

  24. Joleen September 10, 2016 at 5:18 am -

    About 2 years ago My Fiance of 6 years, (now my EX-FIANCE) and his Loan Officer conned me into lending his Parents the money for his down-payment, as a “GIFT” from them ($10k). This money was VERBALLY AGREED UPON, by my Fiance and his Parents, that the monies I lent them, was a LOAN and NOT a GIFT. We weren’t to be married until a year after Settlement, and I would not have any Equity nor be on the title to the house until we were married. I asked about just adding me to the title at Settlement and I was told by the Loan Officer that it was not a good idea to do so. I was extremely wary of this whole transaction, and about 3 days before Settlement (by MUCH prodding from my Fiance and his Loan Officer), I FINALLY told my Bank to wire the money to my Fiance’s parents. Approx. 24 hours before my Fiance’s Settlement, I was then told by my Fiance that he nor his Parents could pay me back. I flipped. Then he tells me that the Loan Officer told him that he could put me on the title to the house, within 3-6 months after the Loan closed so I wouldn’t be so worried. I was upset, but I couldn’t dispute the Wire Transfer with my Bank, in time….to have them reverse it, and to STOP Settlement. I bit the bullet, held my breathe and KNEW I made a horrible mistake. These people committed Mortgage Fraud, and conned me out of my money, to help my Fiance get a Mortgage with MY MONEY. The Loan Officer even went so far, as to CHANGE the RECEIPT on the Home Inspection that I paid for, to make it look like my Fiance PAID for it. Subsequently, after a year…..I FINALLY got tired of fighting with my Fiance about putting me on the title to the House, or paying me back the money (like he said he would do). I have since, broken up with him….over this, which is to be expected. We live in Pennsylvania, and an ORAL/VERBAL AGREEMENT has a Statute of Limitations of 4 years. It has only been 2 years since he defrauded me, so I have the ability to seek Counsel. I was told that I have every right to contact the Bank, and tell them what my EX-FIANCE and his Loan Officer did to obtain the Mortgage. I will also be filing a Civil Law Suit. Any ideas as to the ramifications to my EX and the Loan Officer and possibly the Bank, for perpetrating this Fraud…? And, Yes, I have ALL the documentation to confirm what they did, and much much more.

  25. Colin Robertson August 25, 2016 at 4:52 pm -

    James,

    If you want the definitive answer you should probably ask the lender directly. The source of that cash may also be scrutinized.

  26. James August 24, 2016 at 6:45 pm -

    Hi,

    We are in the process of starting the final loan approval as we are 2 1/2 months out from closing (new construction). We have a FHA loan with 3.5 down and has already placed the down payment and earnest money into escrow. We have the income to cover the new mortgage payment; however, during the time of construction we were planning to save the remaining cash to close amount. We are exactly 3 weeks from obtaining the cash (5K). Since we are 2 months out from closing date, think it is possible the lender wants to see the reserve money now or will wait until it is all there.

  27. Colin Robertson August 4, 2016 at 11:21 am -

    Maureen,

    It might be possible to use assets to qualify for a mortgage (assuming they are plentiful/sufficient), but it might be easier to secure all mortgages before retirement.

  28. Maureen August 2, 2016 at 4:01 pm -

    Hi. I’m planning to retire in 2.5 years, sell my current home owned outright and purchase a home in another state. I expect to need some amount of mortgage in addition to the approx. 100k from the sale of current home. Will I be able to get a mortgage based on social security, personal annuity, and IRA distributions? Will they accept those as income at that point? I’ve been advised they won’t and I’ll need to get mortgage and buy home prior to leaving ft work. Thanks so much!! M

  29. Colin Robertson June 24, 2016 at 4:18 pm -

    John,

    Can’t comment on the tax implications, but you should make sure the business assets can be used for the mortgage. Might have to prove that either you have full access to the funds and that their removal won’t affect the business negatively.

  30. John June 21, 2016 at 7:00 pm -

    Hello Colin

    I’m planing to purchase a second apartment , I own a business I have 100K in my business account I like to use that for the down payment which is around 55k I don’t have enough money in my personal account for the down payment I only take out what I need to pay my living expenses, so I need to make a payment to my personal account for the down payment before the purchase is that correct if I wanna use the money from the business, but that money I take out I will need to pay income tax correct? Same as I pay on my monthly salary. Thank you for your advice!!

  31. Colin Robertson June 9, 2016 at 9:57 am -

    B,

    If it is indeed counted and the DTI is exceeded, you could ask for an exception or play around with the numbers (down payment, etc.) to get the DTI back into range.

  32. B.. June 7, 2016 at 5:52 pm -

    Hi Colin,
    I’m in the middle of the mortgage process with one of the nations largest lenders and am trying to purchase my dream home (for a wonderful price and as a new primary residence) before selling my current home. (Trying to capture this house before it’s gone and have plan to do minor renovations aka have wallpaper removed, rooms repainted, install carpets in order to put current house on market for late summer/fall – and I can carry both properties for up to a year if I had to without damaging myself financially)

    This is a jumbo/non-conforming loan program with 10.1% down and no PMI. Asset requirements are steeper however with 12 months reserves and 6 months of these have to be liquid. I planned to take a 401k loan to help subsidize closing costs and meet the liquid asset requirements at closing and at the outset I asked the originator specifically if the 401k loan would be counted toward DTI and was told no. Here I am over $1,200 deep in inspections and the loan processor u was handed off to informs me that the 401k loan is indeed going to count towards DTI and that puts me in the 37% range and the hard cutoff is 35%. I think I feel the dream home slipping away. I understand this isn’t a normal conforming loan, but this feels rather bait-and-switch… I’d appreciate any background info on how this might happen and also any advice you may have. Thank you.

  33. Colin Robertson June 1, 2016 at 8:21 am -

    Lisa,

    Probably best to ask your lender when you should move the money to ensure it runs smoothly.

  34. Lisa May 31, 2016 at 11:25 am -

    Hi, I’m buying my first home and will be using a rollover IRA to cover my closing costs. Funds are from my previous employer’s 401k and have been in the IRA account about a year and half. My question is should I move the funds to my personal checking/savings account now or transfer the finds right before the closing date in mid-July? I’m still confirming a lender and may check one or two more to compare rates/fees.

  35. Colin Robertson May 23, 2016 at 8:49 am -

    Mae,

    If they needed a purchase contract for that specific address, they’ll likely need one for the new property. There may also be a time limit to apply the funds to a home purchase, which you may want to discuss with the 401k company to ensure you complete everything in time.

  36. Mae Francis May 18, 2016 at 2:22 pm -

    Hi Collin,

    My husband borrowed from his 401k to use as a down payment for a home purchase which we received and deposited into his checking account. The purchase fell through because of a problem with that specific house and we had to cancelled the purchase contract. We will now be looking for another property to purchase. Do we need to let his 401 company know what happened, or just move forward with looking for something else to buy, since they previously requested copies of the purchase contract of that first home that we ended up not buying. Also, what if we need to now borrow more money from the 401k? Will they then ask about what happened to the first purchase? We just want to do what’s right.

  37. Colin Robertson May 2, 2016 at 9:37 am -

    Stacey,

    Ideally you won’t have to actually move any money out for your 401ks, instead just use it as proof of reserves. Your broker should know best how to structure the loan knowing who has what assets available. Not sure why you would want to mess with your retirement to pay your insurance bill. Maybe there’s a better way to get cash, such as a lender credit to pay for some/all of the closing costs in exchange for a slightly higher mortgage rate.

  38. Stacey May 1, 2016 at 6:05 pm -

    Colin, I have no debt, hence no credit score. My husband has no debt but still has a credit score of 746. We are building a new $328,000 home and have been pre-approval. I make $86,000 a year & husband $77,610. We have 20% down plus $7,000 closing costs in our joint checking but this will deplete our savings & MM. Husband has $203,000 in 401K, I have $89,000. Mortgage lender wants to only use my husband on the loan but I will be on the title. Can his 401K be used as assets without without actually withdrawing and depositing into our joint account? Also, I have a separate checking account for my personal spending money. Since I will not be on the loan, can I take a loan from my 401K to deposit into my checking account to use for expenses such as to pay the insurance in full on the new home for the full year? We are not escrowing the taxes or insurance. Or, would that jeapordize the loan since I will still be on the title and signing the paperwork during closing? Unfortunately I am not very confident in our mortgage brokers advice with the new 2016 laws in play. Thank you.

  39. Colin Robertson April 18, 2016 at 12:04 pm -

    Tim,

    There’s an option to use asset depletion to qualify for a conventional mortgage if you don’t have an income…look into it.

  40. Colin Robertson April 18, 2016 at 11:36 am -

    Michelle,

    It sounds like you both aren’t great borrowers (at least in terms of straight up numbers, sadly), and you may have difficultly qualifying for a mortgage either with just one or both of you. Might be good to sit down with some mortgage brokers so they can assess your situation and determine what type of financing you’re eligible for if any. In the meantime do your best to improve your credit scores and squirrel away money to buffer your asset reserves. Also keep spending to a minimum if possible, which should boost your scores and increase assets if you rely on credit cards a lot. Shouldn’t have to actually sell your stock to use it…it just has to be available to you. The job thing is tough because you can’t just add employment history, but there may still be options. And if everything else in your borrower profile looks better (credit score, assets) it should help.

  41. Michelle Moretz April 8, 2016 at 6:07 pm -

    Dear Colin,

    My husband and I want to buy a house by August of this year however, we each have some weaknesses regarding our situations. We do not know if I should apply, he should apply or if we should apply together for a home. My situation: currently unemployed, full time student working on masters degree and taking care of our 5 month old. $10K in savings. $43K in stock established and maintained with major growth since 1992. Credit mid 600’s. Around 35K in student debt loans.
    Husbands situation: no savings or checking really except a buffer of $1,000 due to me controlling the finances, he is amazing at spending all of our money. He is employed full time but with a new employer, started 12/15. His credit is high 500s.He is retired army so could do VA.
    If you were in my position what situation has less risk? Or do we not stand a chance at all? Also…do I have to liquidate all of my stock for it to be considered assets? And…if 6 months of steady employment history is not strong enough for my husband, do you believe 9 months would suffice? Our rental renewal starts 09/16, trying to buy before then. Thank you in advance for any advice you send my way! Best Regards, Michelle Leigh Moretz

  42. Tim April 7, 2016 at 2:44 pm -

    Colin,
    I need to plan what I can do. I would like to see if there is an option for me not to be working when I get a loan for a new house. When I sell my current house, I will have enough for the down payment. I have a nice 401k that I want to use as income. I want to pull it out slowly to make the monthly payments. This is so I would fall into a lower tax bracket. Can this be done? How do I do about getting the loan?

  43. Colin Robertson April 4, 2016 at 6:58 pm -

    Jane,

    Not sure if you’re working with just a single bank/lender, but it might be advisable to inquire with a broker who can guide you through the process and determine the best financing option(s) for your situation. Good luck!

  44. Jane March 29, 2016 at 8:55 am -

    Hi Colin. My husband is being transferred from West Coast to East Coast end of May and was pre-approved for a mortage by the loan company he works for (he works marketing and is not involved in the mortgage aspect of the company). We found a house and put in an offer. We did everything that we were asked to do and today the mortgage company said our funds were not acceptable because they were not seasoned and they wouldn’t take part of it because it was a gift (with a gift letter). We will loose the funds that we have given as a good faith holding and are about to loose the option to purchase the house. My husband does not have very good credit, but good employment and rental history. This loan was to be an FHA loan through Fannie Mae. Are there any other options out there that we could utilize that would allow us to purchase this home still? They never advised us of seasoned funds, only gave us an amount to have in the account for us to proceed. We had most of the deposit for over two months as cash on hand because we were saving it up towards our cross country move. If we had known, we could have deposited the money earlier. We move end of May and if we have to rent a place, it would cost most of our savings because of first and last month plus security.

  45. Colin Robertson March 16, 2016 at 10:08 am -

    Heather,

    The lender will likely see the payment history on his credit report though if enough time has passed it may not be an issue.

  46. Heather March 14, 2016 at 12:30 pm -

    Hi Colin. My husband filed bankruptcy 5 years ago before we were married. Although he kept his house , he has been paying the mortgage late. If we sell the house, will we still have to provide his payment history to qualify for a loan. We want purchase another house less than six months after we sell the current house.

  47. Colin Robertson February 22, 2016 at 7:25 pm -

    Anne,

    It might actually make sense to speak with some lenders now, as opposed to waiting until the 11th hour, to see what potential issues you may have once it comes time to apply for a loan. If his new job is in the same field as his degree a lender may not have a problem with his limited job history because it makes sense. Cash on hand seems to be a lot better than many other Americans…

  48. Colin Robertson February 22, 2016 at 7:10 pm -

    Karen,

    Best to speak with a loan officer experienced with USDA to see what is specifically needed for your particular loan amount and loan scenario.

  49. Anne February 22, 2016 at 9:30 am -

    Hi Colin – My husband and I each make about 70k, $140k total. My husband’s job began in late 2015, and prior to he was making about $25k until he completed his masters in mid-2015 and began negotiating for this job. I am concerned about him nearly tripling his income – will they question this? Job is in the exact field for his masters. We have about $50k for down payment from previous home sale, $23k in reserves (401k), and $10k in additional savings for closing costs. We are looking for houses around $400k but haven’t even tried to get pre-approved yet because I am concerned that due to his short time of employment they will say we don’t have enough cash on hand. Will most lenders require he be there for two years with our limited assets?

  50. Karen February 20, 2016 at 4:43 pm -

    Hi Colin,

    Me and my husband are looking into buying our first home. We have savings account but not a lot of money in it. I have 11,000 on 401k tho, would that be enough for reserve? we’re looking at a 134,000 USDA loan.

  51. Colin Robertson February 11, 2016 at 3:53 pm -

    Michelle,

    You can ask your loan officer to discuss with the UW what you just wrote, that’s it’s not a hardship if that’s in fact the issue with not allowing the funds for reserves, or ask for an alternative to meet the reserve requirement if they won’t budge. Generally the most diplomatic route with underwriters is asking for an alternative to get the job done.

  52. Michelle February 10, 2016 at 8:09 pm -

    Hi Colin-
    I am at the end of my loan process and the underwriter has surprised me saying that funds in my 401k that could only be withdrawn in a ‘hardship’ case cannot be counted for my reserves. I am short 2500 in reserves and there is a significant magnitude greater in the account. I am fully vested so the money is available to me. Instead the advisor wants me to make a withdrawal from the account (I have the max loans out, but the company match is available up to the max of 50k now —still a penalty, but no hardship required). Is the under writer correct –this is Wells Fargo …if she is not what is a good diplomatic tactic to get her to move to another position in her thinking?

  53. James February 1, 2016 at 1:20 pm -

    I’m a first-time home-buyer and have $10,000 in an IRA that I’d like to use towards the purchase of my first home, but I’m a little confused as to what expenses are eligible to use those funds and avoid the tax penalty. Fo instance, am I able to use those funds to pay for the initial appraisal and inspection of the property, or do those have to come out-of-pocket?

  54. Colin Robertson October 1, 2015 at 10:40 am -

    Julia,

    Hard to say, but if you state your case and it makes sense to the underwriter (and provide documentation when necessary), it has a chance. It may just take some extra legwork and paperwork…

  55. Julia September 30, 2015 at 9:23 pm -

    Colin,
    I recently applied for a mortgage and the underwriters have asked me to explain a 6 month gap in my employment history and a large deposit of 10K. To make a long story short, I was working for a start-up company for 6 months and they couldn’t afford to pay me. I was actually eventually employed by one of the founders in a different business that could afford to pay me. When the start-up became profitable they sent me a check for 10K along with a thank you note for helping them get the business running. I spent the 10K on moving expenses (cross country). I didn’t include this as wages on my application, as it wasn’t taxed and was sent to me as a thank-you gift. I am not using it for a down payment, or stating that it is income. I explained where the money came from in an email to the underwriters (as requested), but I am now concerned that it will prevent me from getting my mortgage. In your experience do you forsee this as being a problem?

  56. Colin Robertson September 29, 2015 at 6:25 pm -

    Melanie,

    You should ask your lender to be certain but retirement assets are often used for down payment, closing costs, and reserves, though underwriters do generally like to see that you have some money in the bank as well.

  57. Melanie September 28, 2015 at 12:43 pm -

    Can retirement funds be our only source of reserves? We want to put 10% down but if we have to show months of reserves, then it will take our 10% down to do that. We have about $90K in our 401k together. Will that suffice?

  58. Colin Robertson September 28, 2015 at 12:11 pm -

    Wayne,

    Reserves are just required for the loan to fund, to ensure you have necessary cash to make future payments. Once the loan funds and records and the process is over the money shouldn’t need to be in any given account. Ask your loan officer for specific details.

  59. Wayne September 25, 2015 at 1:11 pm -

    I’m required to have no less then 1% of the sales price in my account per loan requirements

    “The borrower must have not less than 1% of the sales price verified as their own liquid funds, available to use towards closing
    costs, pre-paid items or have as cash reserves after closing. The remainder of the required funds may be from borrower’ s funds,
    seller paid funds or a gift.”

    My question is after closing do I still have to keep this amount in there?

  60. Colin Robertson September 25, 2015 at 8:30 am -

    Soumya,

    IRA accounts are acceptable for reserves, but speak to your lender/loan officer for program specifics to be sure.

  61. soumya thomas September 25, 2015 at 5:01 am -

    hi, Can i use my ira accounts to show reserve?

  62. David L Richards September 6, 2015 at 8:29 am -

    Colin,

    In connection with the asset reserve requirement for a mortgage application, I provided stock in a publicly traded major utility which can be sold and proceeds received in one week from the request to sell. The value of the stock is well in excess of the two months reserves I need. I have been told this is not sufficient. Does this make sense? What are the standards for liquidity for this purpose?

  63. Colin Robertson August 26, 2015 at 3:28 pm -

    Nicole,

    A home isn’t considered a liquid asset because it’s not easy to…liquidate, aka sell. But homeowners often tap their home equity to buy another home, just make sure you can qualify for both loans.

  64. Nicole August 26, 2015 at 10:57 am -

    I am currently finalizing a cash out refinance with my current property, the money I am talking out of my property is for another house I am in the process of purchasing. Can someone help me understand if the dollars I am waiting to receive from the refinance are going to be able to be used as proof of funds on my investment property. The refinance has already received the mortgage commit, as well as the appraisal. Is my current house considered a liquid asset, not only for the dollars I’m taking out, but the equity I will still have after the refinance?

  65. Colin Robertson August 22, 2015 at 9:29 am -

    It sounds like your gift money is also seasoned, coming from a retirement account you’ve held for some time, but she may want to clarify with the lender to make sure she satisfies any specific requirements they may have.

  66. Ruth August 21, 2015 at 8:26 pm -

    Thanks Colin, but she was approved for an FHA loan and was told that my gift had to be seasoned. Was she told the wrong information?

  67. Colin Robertson August 20, 2015 at 9:02 am -

    Ruth,

    That 60-day thing is for the borrower’s account, should they want to have seasoned funds and thus not need a gift.

  68. Ruth August 19, 2015 at 10:27 pm -

    Hi Colin, I just turned 60 and am withdrawing all of my 401k. Part of it will be gifted to my daughter to help her purchase a home. Does the money need to be in my checking account for 60 days or can they just verify the 401k was active for that long?
    Thanks!

  69. Dustin August 13, 2015 at 8:00 am -

    Hi Colin, if needed I plan to take a loan out against my 401k to meet the PITI. Do I need to have the funds withdrawn from my 401k to meet the PITI requirements or can I simply provide a monthly statement and current balance as proof that the funds exist if they are ever needed?

  70. karen August 12, 2015 at 9:12 am -

    why can i not purchase land the has 2 houses on it.both house are nice and move in ready and i have renters long term lined and have enough money,but bank is telling me something about having property assesed is to to hard and i would get approved for that reason..so confused

  71. Anne August 10, 2015 at 5:43 pm -

    Colin,

    My husband’s home was foreclosed in 2012. We would like to apply for an FHA mortgage and try to get approved for around 150,000 to buy a condo or townhouse. Will we need to wait until exactly three years from the time the property was sold at auction (9/4/12) or three years from the date the sale was recorded with the county (9/24/12). We live in Florida.

    Also if I may ask one more question: when the lender looks at our savings account statement they will see that we usually move $100 a month from our savings to checking to cover our expenses. Will that be a huge red flag that will get our application denied altogether, or just that we will get approved for a low amount? Should we try to go two months without touching our savings at all and then apply? Thanks.

  72. Ann White August 8, 2015 at 10:38 am -

    We are currently in the process of an FHA/MSHDA down payment assistance mortgage approval. With MSHDA, they provide $7,500 for down payment assistance. The loan is underwritten thru the bank, then thru MSHDA. We recently sold our 35 year old mobile home for $4,000 cash. MSHDA is questioning these funds – we did a purchase agreement, but nothing official or notarized. We are holding onto title of home, in case mortgage does not go thru. MSHDA is requesting a formal affidavit. We will send this along with the filled out title and possible a copy of the buyer of our mobile home’s, bank statement to show the funds going out. Will this jeopardize our loan and down payment assistance? Is it possible they can still deny us? We cannot get the mortgage without the down payment assistance.

  73. Colin Robertson August 2, 2015 at 12:40 pm -

    Aliyah,

    If gifts can be used for reserves it shouldn’t be an issue…otherwise maybe have him gift you down payment if only that’s allowed. Your LO should be able to provide guidance.

  74. Aliyah1981 July 30, 2015 at 5:59 pm -

    Hi Collin, Im married, however Im obtaining a Conventional loan by myself for 150K with a 740 credit score. My husband and I have a joint bank account and he is going to deposit 6K from Vanguard for reserves. Can I claim this as a gift from him or no since he is my husband? Ive paid down almost all my debt therefore Im cash poor now and Im worried about seasoned reserves. I will only have around 2-3K in cash and around 5K in my 401k. My application will go into underwriting in the next couple weeks. Any suggestions?

  75. Colin Robertson July 26, 2015 at 7:12 am -

    Stephanie,

    For VA, reserves aren’t required for single-family homes and duplexes unless lender findings call for them.

  76. Stephanie July 25, 2015 at 7:57 am -

    Colin,
    My husband is purchasing a home and obtaining a VA loan. I am not on the loan due to my credit score. 1) Is he required to have reserves? and 2) can he use my 457 account as reserves?

  77. Colin Robertson July 22, 2015 at 11:07 pm -

    Jan,

    If you disclosed the account on the initial application they will likely want documentation, but if you’ve got more than enough seasoned assets elsewhere it shouldn’t be an issue.

  78. Jan July 22, 2015 at 3:16 pm -

    Hi! I have applied for a refi (it’s a portfolio loan) with my boyfriend. We both have credit scores over 740, long job histories, good salaries, an anticipated DTI of 37% after refi, close to no credit card debt, over $200K reserves (50 months worth) in the form of my boyfriend’s investment account. Our house will have a CLTV of 75%. We are rolling closing costs into the loan. Will the lender bother doing a VOD on my bank account even though my assets aren’t needed for qualification purposes? Also, I have a large deposit I couldn’t avoid that I don’t feel like going through the rigamarole to explain.

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