Assets and Liabilities
A borrower’s Assets will be taken into consideration during the mortgage loan qualification process because, as with employment security, a borrower’s assets demonstrate their stability and ability to pay back their debts to mortgage lenders. Liquid assets such as stocks, bonds, and cash on hand will be considered during the mortgage loan qualification process. Non liquid assets such as 401Ks or CD accounts that are not easily turned into cash will also be included in the mortgage loan qualification process. Some mortgage loan programs will require the borrower to maintain 3-6 months in reserves for their monthly expenses, in addition to their down payment if it’s a purchase loan.
A borrower's debt or liabilities is a key determining factor in the mortgage loan qualification process. Liabilities directly affect the debt to income ratio. Mortgage lenders want to be sure that their investment in a mortgage loan will be a priority for a borrower. Borrowers that have high levels of debt and liabilities are a lot more risky an investment because the likelihood that they will default on their mortgage loan is a lot higher. It is always prudent to keep the balances on lines of credit below 30% of their limit. This not only helps borrowers qualify, but it helps keeps credit scores healthy furthering a borrower’s credit worthiness.
