Mortgages: What Are Seasoned Funds, and Why Lenders Care About Them?

Stack of money and model houseSeasoned funds are money that has been in your bank account for at least two months. They serve as your cash reserves, and make up your down payment; they’re liquid assets that will boost your mortgage application.

No matter how much a home mortgage calculator in Utah, Arizona, or New Mexico tell you to save, it has to be document-based. Here’s why lenders like American Loans want to see a paper trail:

Guaranteeing That You Can Pay Your Loan

First of all, your prospective lenders want to see proof of seasoned funds to make sure you’re not living paycheck to paycheck. A mortgage payment is the biggest and perhaps the most frequently recurring bill anyone could have. If you can get by without touching a significant amount of money in your bank account, it’s an indication that you can afford loan repayment.

Ensuring Your Debt-to-Income Ratio Is Accurate

Some borrowers get cash advances to create a false impression that they have adequate assets—and lenders know this. Seasoned funds must be savings, even those you might receive as gifts. When you take out a loan to make you look more financially flexible, you’re going to increase your debt-to-income ratio. Unless your income suddenly increased concurrently, borrowing cash to borrow more cash wouldn’t bode well for your mortgage application.

Lenders would look for proof to conduct an investigation. They want to see two months’ worth of bank statements because loans typically get reported to credit bureaus within 60 days.

Avoiding Foreclosure

Although your mortgage lender can take your property if you default on the loan, foreclosure doesn’t create the best situation for all parties. Foreclosed houses are non-performing assets, and staying that way could mean considerable financial losses for lenders. But when the borrower has enough seasoned funds, the level of risk they have to absorb decreases effectively.

Sufficient savings are a pre-requisite for home ownership. Not waiting until you have enough money to apply and deliberately tricking the other party would put you at a disadvantage.

4 Little Secrets about the Mortgage Industry That Will Amaze You

Loan flashed on laptop screenIf you’re thinking of purchasing a home, then there’s a good chance you’ll be applying for a mortgage to finance it. Well, unless you have gone through the mortgage application process, then there’s still much you probably want to know about it.

In this article are four of the best-kept secrets about mortgages.

Mortgage rates are sometimes very volatile

Don’t be fooled that rates change very slowly every time. History has shown that these rates may make surprising leaps or drops. In just a single year, rates can move up by more than two percent.

For this reason, it’s best to take advantage of a friendly mortgage rate in Phoenix from lenders such as VIP Mortgage when you have the chance to. You never know.

The difference in rates between lenders can be significant

The best advice someone can give you as you look for a mortgage is to check out different lenders first. Incredible as it seems, two lenders in the same city can have rates that differ by as much as $60 per month for borrowers with the same credit score and loan repayment period.

Considering you’re going to be repaying the loan for decades, that’s a huge difference.

Paying a little extra can make a massive difference

A hundred more bucks for your monthly installment may sound like a lot of money, but you’ll be surprised by the difference it makes in the long run. Why? When done consistently, it can shave up to five years off your loan repayment period. That saves you a lot in terms of interest.

Your mortgage can be sold

Many borrowers are surprised and unsettled to discover that their original lender sold the mortgage to a different lender. Actually, there’s nothing to be concerned about, as mortgage selling is quite a common practice. Your original lender ensures that your mortgage is still serviced, as should have been the case.

Knowing as much about mortgages as possible is a good idea. Not only do you make the right decisions when buying a home, but also sound more knowledgeable around your friends.