Getting Ready for the Future # 1: Assets

This is Labor Day so I thought we should think about how we should labor at our finances. Start a savings account.

With all the changes in the Mortgage arena in the past few weeks, I have been thinking about how this will impact you when you want a mortgage and how you should prepare your finances to get a mortgage in the future.

You will need to be able to document your income and assets. For assets, being able to show two months bank or account statements. Any large deposits will need to be explained. (You sold a car, had wedding gifts, received a bonus, etc., fine, no problem)

Approvals often look at Months of Reserves. This means that after closing how much money will you have in the bank to make payments in an emergency.

Some loans require a specific number of months reserves. A month of reserves is equal to the PITI + HOA monthly payment. Usually reserves are evaluated at 0, 1, 2, or 6 months. Retirement accounts count but only at 70% of value.

On marginally approvable loans, showing more assets could persuade the underwriter to approve the loan.

If you are planning for a mortgage, start saving some money. A savings account in a bank separate from your checking is good because you add to it each month like a payment but it is not as convenient to go get it out.

MMM