Introduction
This topic contains information about certain asset policies in DU, including:
- Asset Verification Documentation
- Depository Assets
- Bridge Loan
- Cash Deposit on Sales Contract (Earnest Money)
- Gifts and Grants
- Gifts of Equity
- Net Equity from Properties Pending Sale
- Proceeds from Sold Properties
- Net Worth of Business
- Other Liquid Assets
- Secured Borrowed Funds
Asset Verification Documentation
DU indicates the minimum verification documentation requirements necessary for the lender to process the loan application. This level of documentation may not be adequate for every borrower and every situation. The lender must determine whether additional documentation is warranted.
Depository Assets
For depository assets (checking and savings accounts, money market funds, and certificates of deposit), DU will require two consecutive monthly bank statements (60 days of account activity).
Monthly bank statements must be dated within 45 days of the initial loan application date.
Quarterly bank statements must be dated within 90 days of the initial loan application date, and the lender must confirm that the funds in the account have not been transferred to another asset account that is verified with more current documentation.
A Verification of Deposit (Form 1006 or Form 1006(S)) can be obtained in place of bank statements.
When DU validates assets, DU issues a message indicating the acceptable documentation. Compliance with the DU message satisfies the requirement for documenting assets. This documentation may differ from the requirements described above. See B3-2-02, DU Validation Service
Bridge Loan
Enter the amount of a bridge (or swing) loan in the asset section of the loan application. Do not include the amount of the bridge loan in any other liquid asset. (For example, do not enter the amount of the loan both as a bridge loan and in a checking account, even if the loan funds have been deposited.)
Bridge loans should also be considered in the net equity calculation for properties that are pending sale. (In other words, the amount of the bridge loan should be subtracted from the net proceeds to avoid counting this asset twice.)
See B3-4.3-14, Bridge/Swing Loans for additional information.
Cash Deposit on Sales Contract (Earnest Money)
See B3-4.3-09, Earnest Money Deposit, for documentation requirements.
Form 1003 7/05 (rev. 6/09)
When cash deposit on sales contract (earnest money) is entered in Section VI Assets, DU does not consider it liquid. Therefore, in order to give the borrower credit for earnest money that is not already reflected in a liquid account, the lender must enter the earnest money amount as follows:
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If the earnest money check has not cleared the borrower’s bank account, the amount can be included in a depository account, such as a checking or savings account.
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If the earnest money check has cleared the borrower’s bank account, the amount can be entered as Other Credit in Section VII, where it is assumed to be verified.
Do not enter the amount in both places.
Form 1003 1/2021
Earnest money is treated as a credit to the transaction and will reduce the borrower’s required funds to close as reflected in L4 Qualifying the Borrower - Minimum Required Funds or Cash Back. The earnest money check is assumed to have cleared the borrower’s bank account and must not be reflected in the balance of an asset account.
Gifts and Grants
Gifts or donations from entities (grants) are permitted and documented in accordance with B3-4.3-04, Personal Gifts, and B3-4.3-06, Grants and Lender Contributions. The entry of gifts and grants on the loan application is as follows:
Form 1003 7/05 (rev. 6/09)
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When a gift is entered in Section VI Assets as a gift, the funds are included in available funds. It is important that the gift amount is identified separately as a gift even if the funds have already been deposited in a liquid asset account owned by the borrower (such as a checking or savings account). The balance of the liquid asset account entered in the loan application must be adjusted accordingly to prevent duplicate entry of funds. For example, if the borrower’s verified checking account reflects a balance of $15,000, and $5,000 of that amount was from a gift, the checking account balance should be adjusted to reflect $10,000, and the $5,000 should be entered separately as a gift.
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When a gift is entered in Section II as a source of down payment, the funds are not included in the available funds.
Some loan origination systems (LOS) may not provide a “gift” data entry option, or the gift entry may not map correctly to DU. (For example, the LOS may identify the gift as a checking account when the data is transmitted to DU.) The lender must ensure that gift information has been properly identified in DU.
Form 1003 1/2021
Gifts and grants are entered in Section 4d and identified as being deposited or not deposited. Gifts and grants that are deposited have been received by the borrower and the value should be included in another asset account. The amount of the gift or grant is not included in available funds.
Gifts and grants that are not deposited are not included in another asset account. The amount of the gift is included in available funds.
Gifts of Equity
Enter a gift of equity in the loan application.
A gift of equity must meet the gift of equity requirements defined in B3-4.3-05, Gifts of Equity.
Net Equity from Properties Pending Sale
See B3-4.3-10, Anticipated Sales Proceeds, for additional information.
Form 1003 7/05 (rev. 6/09)
When full REO data is entered, DU automatically calculates the estimated net equity from properties marked Pending Sale in Section VI R using the following formula:
((Present Market Value × 90%) – Amount of Mtgs. & Liens)
However, because full REO data is not required in the online loan application, the lender can calculate the net equity outside of DU and enter the amount (positive or negative) as Net Equity in Section VI A.
If net equity is calculated from data in Section VI R and is also entered in Section VI A, DU will use the amount from Section VI A.
If a bridge loan is obtained, the amount of the bridge loan is subtracted from the net proceeds (in the Amount of Mtgs & Liens in the REO or when Net Equity is calculated by the lender).
When the net equity is positive, DU will add the amount to the funds available for closing. When the net equity is negative, DU will subtract the amount from the funds available for closing.
Form 1003 1/2021
The lender must calculate the net equity from a property marked Pending Sale in the REO section outside of DU. The amount is entered as the asset Proceeds from Real Estate Property to be Sold on or Before Closing.
If a bridge loan is obtained, the amount of the bridge loan is entered as an asset and must be subtracted from net equity before entry in the loan application.
When the net equity is positive, DU will add the amount to the funds available for closing. When the net equity is negative, DU will subtract the amount from the funds available for closing.
Proceeds from Sold Properties
Proceeds from properties that have already been sold must be included in a depository account, such as a checking or savings account.
Net Worth of Business
Form 1003 7/05 (rev. 6/09)
When net worth of business is entered in Section VI A, DU does not consider it liquid. If the borrower is using proceeds from the sale of his or her business, the net proceeds should be entered in a depository account, such as a checking or savings account.
Other Liquid Assets
Form 1003 7/05 (rev. 6/09)
Enter the value of personal assets that will be converted to a liquid asset (or sold) prior to closing. For example, enter as Other Liquid Asset the net cash value of life insurance, automobiles, or other personal assets that will be sold, or the amount of pending tax refunds that will be received prior to closing. A verification message will require evidence of the value of the asset and confirmation that the asset was converted to cash.
Form 1003 1/2021
Enter the value of personal assets that will be converted to a liquid asset (or sold) prior to closing as the asset type Proceeds from Sale of Non-Real Estate Asset. (See B3-4.3-18, Sale of Personal Assets, for additional information.) Life insurance that will be used for the transaction is entered as Cash Value of Life Insurance. An Other Asset (liquid) may be entered for other types of assets that will be used for the transaction, such as pending tax refunds that will be received prior to closing.
A verification message will require evidence of the value of the asset and confirmation that the asset was converted to cash.
Secured Borrowed Funds
Borrowers can borrow against an asset they own, such as a 401(k) account or real estate, according to the requirements of B3-6-05, Monthly Debt Obligations. The amount of the secured loan should be entered as Secured Borrowed Funds in the asset section o the loan application. The secured loan amount should be subtracted from the market value of the actual asset, and the net asset value should be entered. For example, if the borrower has a vested value, less taxes and penalties, of $30,000 in a 401(k) account and borrows $10,000 against the 401(k), enter $10,000 as secured borrowed funds and enter $20,000 as retirement funds.
A loan that is secured against a liquid asset owned by the borrower (such as a 401(k) or mutual fund) does not have to be entered as a liability in the loan application if the appropriate documentation is provided.
Loans that are secured against real estate, or any other non-liquid asset, must be entered as the applicable liability (for example, as a mortgage).