Even though a VA loan does not have a down payment requirement (100% financing), the borrower may be required to have sufficient cash to cover certain expenses (if not paid by the lender or seller). The VA loan underwriter will examine the borrower’s assets when making this determination.
Assets may be necessary to pay items such as closing costs, escrow setup or the difference between the sales price of the property and the loan amount if the sales price is above the reasonable value that has been established by VA. Although VA loan guidelines do not require that the borrower have reserve cash to cover a certain number of mortgage payments, unexplained expenses or other contingencies, lenders may have these requirements. However, VA loans do require 6 months of reserves if rental income is being used to offset the mortgage payment when qualifying for the loan. In this case, reserves will need to be verified.
– Lenders will only consider liquid assets when underwriting the VA loan. Liquid assets are those that can be quickly turned to cash such as checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), stocks, bonds, mutual funds, 401k accounts and IRAs. Other countable assets are the earnest month deposit and any gift funds, both of which must be documented according to VA guidelines). Typically accounts other than money market, checking and savings need to show proof of liquidation prior to final approved if these funds are being used to close the transaction. If solely used as a reserve account, no liquidation is required, just proof that money can be drawn upon.
– Cash on hand or any undocumented funds cannot be considered as assets for the credit evaluation.
– All liquid assets that are necessary for the loan closing will require verification.
– All liquid assets that are being considered in the credit analysis will be verified.
– The borrower must submit the most recent bank statements covering two months. The bank’s name, account number and borrower’s name must appear on the bank statements. If the borrower obtains bank statements online, the bank url must appear on the document. All pages of the document are typically required. For example, if there is a 6 page bank statement, pages 1 though 6 must be submitted even if pages are blank or seem irrelevant.
– The borrower must sign a borrower’s authorization for any verifications. With this document, the lender can request a Verification of Deposit directly from the bank. The Verification of Deposit will provide the lender with the statement balances for two months and the average monthly balance. With this information, the underwriter can tell if any unusual or large deposits have been made to the account.
– A large deposit can be subject to the underwriters discretion for that particular loan. The borrower may need to explain and document any large deposits that have been made to the bank during the two month period.
– In most cases, lenders will only use 70% of the total of any retirement assets, such as IRAs or investment portfolios for the credit analysis.
– Even though the mortgage application includes autos and other belongings as assets, these items are seldom, if ever, used by the lender when underwriting a VA loan. These are not considered liquid assets.
When it comes to credit underwriting assets, the lender is making sure that there are liquid, assets available that can be used for the mortgage payment. It is a combination of the ability to save and the total accumulated that is examined and considered by the underwriter. It is the intention of the lender, Veteran’s Administration and VA underwriter to protect the borrower by never putting them into a position that they would not be able to make a mortgage payment which could lead to losing the home. For this reason, VA loans have the lowest rate of delinquency and foreclosure.
Feel free at any time to contact usfor more information about asset requirements and underwriting.
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