Quiz #3 - Assets

Lenders need to verify that the borrower has enough assets to cover the down payment and closing costs because these costs are typically paid upfront during the home buying process. Verifying the borrower's assets ensures that they have the financial means to complete the transaction and reduces the risk for the lender. This verification process helps to ensure that the borrower is financially stable and capable of fulfilling their financial obligations.

A borrower typically cannot use a credit card to pay closing costs. Closing costs are typically paid using certified funds such as a cashier's check or wire transfer. Credit cards are not considered a secure form of payment for large transactions like closing costs, as they can carry high interest rates and may not provide the necessary funds to cover the costs. Therefore, it is generally not advisable or feasible for a borrower to use a credit card to pay closing costs.

A retirement asset refers to the funds or investments set aside for retirement. The question is asking about the percentage of the total value of this asset that can be utilized. The correct answer is 60%, indicating that individuals can use up to 60% of the total value of their retirement asset. This suggests that there are restrictions on how much can be withdrawn or utilized, likely to ensure that individuals have enough funds for their retirement years.

Parents and/or children can provide a gift for the borrower to help fund the closing costs. This is a common practice in real estate transactions where the buyer may need additional funds to cover the expenses associated with closing the deal. The gift can be given by the borrower's parents or children and is typically used to cover costs such as down payment, appraisal fees, or attorney fees. This allows the borrower to complete the purchase without having to rely solely on their own financial resources.

If a seller wishes to contribute to the borrower's funds to close, they may pay the closing costs. Closing costs are the fees and expenses that borrowers pay when purchasing a property, such as appraisal fees, title insurance, and attorney fees. By paying the closing costs, the seller is helping the borrower cover these expenses and facilitating the closing of the transaction. The down payment, on the other hand, is the initial payment made by the borrower towards the purchase price of the property and is typically not paid by the seller.

The explanation for the answer is that EMD or earnest money deposit is not equal to the borrower's down payment. EMD is a deposit made by the buyer to show their serious intent to purchase a property, while the down payment is the initial payment made by the buyer towards the purchase price of the property. These two terms are different and serve different purposes in a real estate transaction.

Asset statements must cover a period of 30 days because this duration allows for a comprehensive overview of an individual's financial assets within a reasonable timeframe. It provides enough information to assess their current financial situation and make informed decisions. A shorter period may not capture significant changes or fluctuations in assets, while a longer period may become outdated or less relevant. Therefore, a 30-day period strikes a balance between providing relevant information and keeping the asset statement up to date.

Borrowing funds from a close friend or relative to cover closing costs is not a recommended practice in the lending industry. Lenders typically require borrowers to have sufficient liquid assets of their own to cover these costs. Borrowing from a friend or relative may raise concerns about the borrower's financial stability and ability to repay the loan. It is advisable for borrowers to have their own funds available or explore other financing options to cover closing costs.

Large deposits do not only require a written explanation from the borrower. In the mortgage lending process, large deposits are typically subject to additional scrutiny and verification. Lenders may require documentation such as bank statements, gift letters, or other proof of the source of the deposit. This is done to ensure that the funds are legitimate and not a loan that could potentially affect the borrower's ability to repay the mortgage. Therefore, a written explanation alone is not sufficient for large deposits.

W2s are not required to verify all assets on an annual basis. W2 forms are used for reporting an employee's wages and taxes withheld from their paycheck. They are not directly related to asset verification. Asset verification typically involves physical counting or auditing of assets to ensure their accuracy and existence. Therefore, the statement is false.