The 5 C’s of Mortgage Underwriting – Capital

This installment in The 5 C’s of Mortgage Underwriting series focuses on another of the 5 major criteria reviewed to determine whether or not you are qualified for a mortgage: capital. To put it simply, capital is money. Though how much money you are paying as a down payment or in the form of closing costs is an important factor in the decision, the amount of assets you have after closing can be very important, too, as can the simple fact that you have some.


First and foremost, your assets will be evaluated to ensure you have the monies necessary to close on the transaction. Though loan programs vary in what is allowed, these funds may often come from a variety of sources including checking or savings accounts, retirement accounts, the sale of other assets, or even gifts from close friends and family. Unallowable sources typically include unsecured borrowed funds, such as credit card advances or personal loans, or funds whose source cannot be documented.

Beyond verifying the money you will need to complete your purchase, your assets may also provide other insights and arguments to support or refute your creditworthiness. If you have no savings in any form, it can lead an underwriter to question your ability to weather any potential difficulties that may arise in the future. It may even bring your ability to afford the mortgage payment under normal circumstances, particularly if your new housing payment will be higher than your current housing payment.

By contrast, money in savings provides some insurance against a rainy day and is evidence of some cushion to afford a higher housing payment if your payment would indeed be increasing. Beyond that, a pattern of savings suggests sound financial management and responsibility, which will certainly provide an underwriter with more confidence in your ability to handle a new mortgage.

Keep in mind that “savings” does not necessarily mean money sitting your savings account. If you have a 401k and contribute to it every pay period, a percentage of the funds available in that account will be counted toward your assets and the contributions themselves reflect a pattern of savings. Funds withdrawn from a 401k are a commonly-used source of down payments and closing costs. In fact, most 401k plans include provisions for withdrawing or borrowing funds specifically for a home purchase with little to no penalty (check with your plan administrator for your plan’s policies.)

Other assets may be disclosed to reinforce your creditworthiness as well, such as stocks and bonds, unencumbered vehicles, or even valuable collectibles. The key is that their value will need to be, at a minimum, reasonably justifiable and, potentially, documented.

Everyone’s situation is different and this is just one criteria of several, so a lack of significant savings alone is not likely to derail your mortgage application entirely provided you at least have the cash you need to complete the transaction. Still, if you have time before you begin the process, it is a good idea to try to sock away at least a little extra money on the side. If you do not have the time or cannot do so, it would be prudent to prepare an explanation to alleviate any concerns that may arise. As always, I am available at your convenience to discuss this or any questions you may have.

Look for the companion articles to this one on my blog:

The 5 C’s of Mortgage Underwriting – Capacity
The 5 C’s of Mortgage Underwriting – Credit
The 5 C’s of Mortgage Underwriting – Collateral
The 5 C’s of Mortgage Underwriting – Compensating Factors