Physical assets include anything tangible that you own that is valuable, anything that can be touched. Physical assets that can be sold to obtain funds to obtain a mortgage include, but are not limited to, properties, houses, cars, boats, recreational vehicles, jewelry, and works of art. Although your loan is a liability, as you pay it back over time, that portion decreases. Once you pay off the loan, you'll own your unpaid car and can count it as an asset.
In general terms, lenders rank assets from highest to lowest liquidity. In other words, cash and cash equivalents are the most important, since borrowers can more easily use these funds to make mortgage payments. Medical emergency, loss of employment, etc. In reality, almost anything of significant value can be listed as an asset on the mortgage application.
Most commonly, people use cash and cash equivalents in their mortgage application. This can include anything you have on hand, including money in your checking and savings accounts, market accounts, certificates of deposit, and other accounts. For this reason, it is especially important to consider all factors when using collateral to obtain a mortgage loan. On the one hand, collateral can help you get a loan that you wouldn't be able to qualify for otherwise.
However, using your assets as collateral exposes you to risks. If you are planning to buy a home, you have several options to put it into collateral or, depending on the lender, take advantage of the capital you have in your assets to obtain financing from independent sources for the down payment of a mortgage loan. These can include real estate, life insurance, cars, and stocks (26% bonds). You'll need to evaluate each of these options separately to determine if they're the right course of action for your situation.
Each type of collateral has advantages both for the loan transaction in question and for its long-term effects on your financial well-being. The day the borrower repays the entire loan will be the day the home ceases to be collateral and the lender will not have any rights to the asset. While depreciation affects just about every vehicle, there are a couple of key questions you can ask yourself to determine if your car is an asset or a liability. There is also a clear possibility that your assets will help you increase your borrowing potential, which could translate into a bigger house or a better area.
If you use stocks or bonds to obtain a mortgage loan, the bank has the right to sell your assets when they see that they begin to devalue. If your liabilities are much higher than your assets, it's a sign that you might want to work hard to improve your financial health, especially since your overall finances influence your ability to get financing to buy a car. When borrowers complete their initial mortgage application, they will declare for themselves all of the assets listed above. Investopedia defines collateral as “assets or other assets that a borrower offers to a lender to secure a loan”.
There are a lot of different reasons why someone would include your assets in your mortgage application, but the most obvious one is that you have no income. So, your credit card debt is a liability, just like your mortgage, any student loans you have, and car loans. Of all the advice out there today for first-time homebuyers, one of the best is to properly document your assets as a buyer trying to qualify for a mortgage loan. The only problem with cars is that they tend to depreciate quickly, so in a mortgage scheme, the collateral they offer is relatively small.
Regardless of how a lender measures individual assets, borrowers should consider presenting these items as a process where more is better. While documenting your assets is key, there are many other forms and documents a first-time homebuyer should have when trying to qualify for a mortgage loan.
