Does a Mortgage Lender Count Your Policy's Cash Value as an Asset?

If you're about to apply for a mortgage and you own a cash value policy, you'll probably be asked about your assets. Cash value can show up on that list. It's money you actually have in the policy, and many lenders will count it.

Lenders handle it differently, so don't assume. Most want to see a recent statement that shows the cash value, and they often use the net number, meaning the cash value after subtracting any loan balance. If the policy shows $60,000 of cash value and you have a $15,000 loan against it, expect an underwriter to look at $45,000. Some lenders ask for the surrender value instead. The difference between cash value and surrender value can be big in the early years of a policy, so ask which number they use.

The trickier part is what happens if you borrow from the policy to pay for the down payment or closing costs. A policy loan isn't a bank loan, and no lender pulls your credit for it. But when you move that money into checking, the deposit shows up on your bank statement. Mortgage underwriters trace large deposits. They'll ask where it came from. The accurate paper trail is your policy loan confirmation, and some underwriters then treat that loan as a liability while others don't. A few will ask you to show the repayment terms. You don't want to learn that during the last week before closing.

A few steps help. Talk to the loan officer early and ask three questions: Do you count cash value as an asset? Do you use the gross number or the net? If I borrow against it for the down payment, how do you treat the loan? Get the answers before you request the money. Keep the carrier's loan confirmation and the statements together. The policy paperwork list covers what to file and where.

Using the policy for a down payment is its own topic, with its own tradeoffs, and I covered the mechanics in using the policy for a down payment. A policy loan reduces your cash value and death benefit while it's outstanding, and you'll still owe interest on it after you've closed.

I'm a licensed insurance broker, not a mortgage lender or an attorney, so the final word on how your file is treated comes from the lender. Ask for it in writing if you can.