GOLD assets - can it be counted towards reserve requirement for a mortgage

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GOLD assets - can it be counted towards reserve requirement for a mortgage

Sundar Krish
Dublin, CA · Member since 2011 · 13 posts · 0 votes

Hi, I am trying to buy my 5th home (existing 1 - primary, 3 other investment). I am aware that Fannie Mae has reserve requirements for home 5- 10 and in my case I have to show six months of reserve for all 2nd -5th homes.

My question is
1. Would I be able to count GOLD assets that I have towards this reserve.
2. If yes, what sort of appraisal documentation / certificate are preferred / acceptable.

3. Furthermore, Can I also count my GOLD assets towards establishing the capability for downpayment itself, the idea being that I can liquidate the gold and use it for downpayment just before closing ( and after loan approval from the underwriter).

Of course to keep the process simple, I can start off with liquidating the gold even before the loan application process, but if the loan or the house sale falls through for some reason, I would have wasted enough money on the gold liquidation and ideally I want to liquidate it only as late as possible.

I know each lender might have different policies surrounding this, I just want to get an idea of what is the normal practice. I have not got a response yet from my lender, this is probably something that they would rather answer once I go through the loan process and the file is before an underwriter, but that is a bit too late for me.

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  • Account Closed
    Real Estate Investor · Chicago, IL · Member since 2009 · 178 posts · 62 votes
    14y

    Sundar, It is very hard to use gold as collateral because it is easily faked. As you noted you will need an appraisal, however I doubt a bank will accept jewelry. I am not really familiar with gold as security for golds, but I can tell you about gold assets in the futures markets from my fund days, and it may be able to help you.

    In futures markets you can take delivery of gold however it is very difficult to use it. For example, if you take delivery of a gold contract, they will generally send it to a bank and you will highly discouraged to take it out, mainly because gold is so easily manipulated (Gold bars can be melted down and you can put some type of steel in the centre). If you do decide to take the gold out of the bank, in order to put it back into the bank it will have to get it appraised.

    Thats the thing about gold, the important thing is the purity of the gold and jewelry is rarely pure because the softness of gold means you almost have to mix gold with another metal in order to make jewelry. However, something tells me you are not talking about gold bars, or are you?

    FYI I am not an expert in gold, its just a few things I do know about it. The only experience I have with gold is in trading the futures contract.

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  • Darryl Dahlen
    Commercial Loan Officer · Southern Maine, ME · Member since 2009 · 782 posts · 415 votes
    14y

    Back when I did residential loans I had a client use his gold coins as reserves. He had to get them appraised in order for the bank to accept them, and even then, they only took a percentage of the value, but I don't remember what that number was.

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  • Sundar Krish
    OP
    Dublin, CA · Member since 2011 · 13 posts · 0 votes
    14y

    Thanks Vic L. and Darryl Dahlen

    Vic - yes I am talking about gold jewels, not gold bars.

    But the more general question is ( forgive my ignorance about the gold world), isn't there a standard, (semi-)universal, legitimate appraisal certificate that can be obtained and used to show to these banks. Gold being one of the earliest currencies in the human civilization, it is funny that there are no standardizations yet ;)

    BTW I just got a reply from my lender, and they said that the gold has to be essentially liquidated to cash before making it count. That's quite a bummer, may be other lenders have different policies, but not sure.

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  • Account Closed
    Real Estate Investor · Chicago, IL · Member since 2009 · 178 posts · 62 votes
    14y

    Sundar, that sucks to hear that. There is no way to really appraise gold because of the vast difference between products. As I mentioned, the quality and purity of the gold is a significant factor. Without consistency across the gold product line it is very hard to appraise. This means there is a very good opportunity for arbitrage and you can see that in a lot of those "we buy gold" companies. These companies do not give the true value of the product but can offer those in need cash for their jewelry, albeit for probably less than they are worth. I really don't know how these "we buy gold" companies make money or how their business model works, but I bet that they have some extremely clever way of arbitraging the jewelry of those in need vis a vis their knowledge of futures markets. Does anyone know how these companies work!?

    Just don't mail your jewelry to glenn beck.

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  • Tay Gainey
    Real Estate Lender · Buford, GA · Member since 2008 · 12 posts · 0 votes
    14y

    Sundar, i am very familiar with asset lending using gold. It will depend on the value of the jewelry , amount needed for funding and where its currently housed such as a bank or a vault. Most of my lenders i deal with in these areas may require an SKR( Safe Keeping Receipt) and it needs to be from a top rated bank. That SKR will serve as collateral itself. From that point there are a few routes to funding.

    Hope this helps.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y

    I have used appraised gold, silver, diamonds, notes and oil royalties, with an appraised value on deposit with an SKR as Tay mentioned with a letter of credit or a trade value stated where the bank would provide good funds. It was a small bank!!! LOL The secondary market underwriter bought it then as it was readily turned to cash.

    Assets are not considered like they use to be, but are considered. Only highly marketable assets, stocks, bonds, annuities, etc that can be readily turned to cash, like in three days.....yes, an accounting definition is less than a year, but not in these cases.

    I doubt fannie would accept scrap gold, even with an appraisal as the appraisal could be questioned IMO. Today, it is a marketable asset as it can go to almost any pawn shop, but the value is very volitile and people off the street don't get any where near market per penny weight.

    You can sure try it and see and let us know how loud they laughed...LOL......good luck

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