How do lenders assess if you have adequate savings for obtaining a mortgage?

How do lenders assess if you have adequate savings for obtaining a mortgage?

• A. By examining your credit score
• B. By averaging your last six months of checking and savings account balances
• C. By looking only at recent deposits
• D. By reviewing your income tax returns

Answer: (B)

Lenders assess if you have adequate savings for obtaining a mortgage by averaging your last six months of checking and savings account balances. This approach provides lenders with a comprehensive view of a borrower’s financial stability and ability to manage their funds effectively over an extended period. Analyzing the average of these account balances helps to ensure that the borrower has consistent access to liquid assets that can cover the down payment, closing costs, and reserve requirements, which are crucial for loan approval. This method gives lenders confidence that the borrower is not only capable of accumulating savings but can also maintain them, which is an important indicator of financial responsibility. Unlike just considering recent deposits or only looking at tax returns, which may not provide a complete picture of financial stability, averaging account balances offers a clearer assessment of long-term financial habits.

Lenders assess if you have adequate savings for obtaining a mortgage by averaging your last six months of checking and savings account balances. This approach provides lenders with a comprehensive view of a borrower’s financial stability and ability to manage their funds effectively over an extended period. Analyzing the average of these account balances helps to ensure that the borrower has consistent access to liquid assets that can cover the down payment, closing costs, and reserve requirements, which are crucial for loan approval.

This method gives lenders confidence that the borrower is not only capable of accumulating savings but can also maintain them, which is an important indicator of financial responsibility. Unlike just considering recent deposits or only looking at tax returns, which may not provide a complete picture of financial stability, averaging account balances offers a clearer assessment of long-term financial habits.