In the mortgage application context, an asset is not evaluated in the same way as an accountant might consider it.
Asset in Accounting
In the world of accounting, an asset is something you (1) have paid for, and (2) expect to benefit from in the future (economically). With this definition in mind, an asset is typically anything that produces revenue and profits.
Asset in the Mortgage Application
In mortgage terms, an asset is anything that you own that has value. As part of the mortgage application process, you will be asked to provide a list of assets or are things that hold substantial value. A list of common assets include but are not limited to:
- Cash in your bank account
- Money in your RRSPs or TFSA
- Your investment portfolio or stock account
- A vehicle that is owned free and clear
Equity in a property
When you add up the entire value of all your assets and subtract your liabilities you come up with your net worth.
Generally speaking, any lender looking to offer mortgage financing on a property is looking for applicants who have a positive net worth. The general understanding is that in the unfortunate case of a job loss, if there is an asset base for the mortgagor to fall back on, the lender limits their exposure to mortgage payments being missed.
Although a positive net worth is not a standard mortgage requirement, having all your assets outlined on the mortgage application certainly makes your mortgage application more favorable to a lender.
Typically the down payment for your mortgage will be from your assets.
If you would like more information on how to calculate your assets, please contact us anytime... we would love to work with you!