Asset-Depletion Mortgage Loans
In this article, we will cover qualifying for asset-depletion mortgage loans. We will go over what asset-depletion mortgage loans are and the qualification requirements. Asset-depletion loans are non-QM loans that use your assets versus traditional wages to calculate qualified income for a mortgage.
Homebuyers do not need to be employed or have any source of income. However, to qualify, borrowers need to have substantial assets. We will also discuss who benefits from asset-depletion mortgage loans and the net tangible benefit of using asset depletion mortgage loans.
What Does Asset-Depletion Mean?
Many folks not familiar with non-QM mortgages often as what does asset depletion mean? Before you can understand what asset-depletion mortgage loans are, you should understand the meaning of asset-depletion. In general, asset-depletion is when you can use one’s liquid assets to determine qualified income versus using the traditional adjusted gross income from income tax returns.
How Do You Calculate Qualified Income on Asset-Depletion Mortgages
Mortgage lenders can calculate qualified income by using a borrower’s assets instead of using traditional income. A percentage of a person’s liquid verifiable assets is used to calculate qualified income by the means of asset-depletion. In general, with asset-depletion mortgage loans, a mortgage borrower’s monthly qualified income is calculated by taking a person’s assets and dividing the liquid assets by 360 months. 360 months, or 30 years, is the term of most fixed-rate mortgage loans. Speak With Our Loan Officer for Mortgage Loans
Using Asset-Depletion Versus Traditional Income To Qualify For a Mortgage
If you have substantial liquid assets and no other source of traditional income, you can still qualify for a mortgage loan using your assets with asset-depletion mortgage loans. Mortgage lenders can formulate a formula for calculating qualified income using a person’s liquid assets.
The traditional form of income used by mortgage lenders are W2 income, 1099 income, hourly income, commission income, bonus income, royalty income, social security income, self-employed income, retirement income, part-time income, overtime income, alimony income, child support income, disability income, and pension income.
What Are Asset-Depletion Mortgage Loans
An asset depletion mortgage is a non-traditional mortgage loan. It is for individuals who have little to no wages or do not have a traditional job but have plenty of liquid assets. Asset-depletion mortgage loans are also called asset-based loans and asset dissipation mortgages. Asset-Depletion and/or asset-dissipation mortgage use a person’s liquid assets instead of the traditional income to calculate income. With asset-depletion loans, borrowers do not even need to be employed or supply W2s or income tax returns to qualify for the mortgage.
How Asset-Depletion Mortgage Loans Work
You do not need to verify income with an asset depletion loan. It qualifies borrowers based on what assets they own. The loan program uses your assets as collateral instead of your income. This program can allow businesses to free up cash flow to have working capital. Real estate investors enjoy this loan as they pay lower interest rates than are required with other income-based loans. Depending on your assets, loan sizes can range from $100,00 up to 3-5 million.
How Is Income Calculated on Asset-Depletion Mortgage Loans
Qualified income is calculated by taking the total liquid assets and dividing them by 360. This amount is used as your monthly income to qualify. 90% of the assets in a borrower’s retirement account are used as liquid assets, and this can really help borrowers qualify. Monthly qualified income is taking the total liquid assets and dividing them by 360. The above is the simple formula used in calculating hypothetical monthly income when calculating debt-to-income ratios.
Assets That Can Be Used In Calculating Income on Asset-Depletion Mortgage Loans
Underwriters for income asset depletion mortgages will accept the following as assets.
-
- Certificates of Deposits (CDs)
- Bank Accounts, checking or savings, and money market accounts
- Investment accounts, stocks, bonds, and mutual funds
- Retirement Accounts, IRA, or 401 K
Asset-Depletion Mortgage Loans For Borrowers with Bad Credit
Just like it is with any loan, the lower the credit score, the more difficult it may be to qualify. However, you can still qualify, even with credit scores as low as 500. It depends on the credit file, and everyone is different. There are no wage requirements with these loans, which is helpful for many people. You can use your retirement assets if you are under 50 years of age.
Down Payment Requirements on Asset Depletion Mortgage Loans
Typically, A 25% down payment is required. However, this is based on a case-by-case scenario and can be as low as 10%. They will want to see your credit score, usually 680 or higher. A debt-to-income ratio below 50% is typically the standard. These all vary by lender and can depend on other factors as well.
Qualify for Mortgage Loans, Click here
Types of Properties Eligible For Asset-Depletion Mortgage Loans
Single-family homes, condos, non-warrantable condos, condotels, and 2 to 4-unit properties are eligible.
Case Scenario on how asset depletion mortgage loans work:
- Say, for example, a borrower has $2,000,000 in liquid assets and $500,000 in retirement or investment accounts.
- Retirement account- 70% of $500,000=$350,000
- Total Assets counted- 2 mil + 350,000=$2,350,000
- Monthly income is $$6,527 as $2,350,000/360 is your monthly income.
This is how the monthly income is calculated for individuals who do not have standard income revenue.
Loaning of Money Based on A Borrowers Assets
Remember that you will need to shop around and compare closing costs and rates before choosing a lender. This can all vary. An Asset Depletion Loan is not about how much you earn; it’s about how much you own! Non-QM Lenders of asset-depletion mortgages do not want to see your income or income tax returns. They will just be your income based on your liquid assets. The team at Gustan Cho Associates are experts in asset-depletion mortgages.
Start The Asset-Depletion Mortgage Loan Process
If you have any questions or want to qualify for a mortgage based on your assets instead of your income, please contact us at Gustan Cho Associates at (800) 900-8569 or text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays. Gustan Cho Associates is licensed in 48 states including Washington DC, Puerto Rico, and the U.S. Virgin Islands.
Talk to our expert about your Mortgage Loans, click here
Frequently Asked Questions (FAQs)
- What are asset-depletion mortgage loans?
Asset-depletion mortgage loans are a type of mortgage that considers a borrower’s assets, rather than traditional income sources, to qualify for a loan. Lenders calculate the borrower’s ability to repay the loan based on their assets. - How do asset-depletion mortgage loans work?
In asset-depletion mortgage loans, the lender assesses the borrower’s liquid assets, such as savings, investments, and retirement accounts, and uses a formula to determine the monthly income derived from these assets over a certain period, typically 3 to 10 years. This calculated income is then considered alongside any traditional income sources. - Who benefits from asset-depletion mortgage loans?
Asset-depletion mortgage loans can benefit borrowers with significant assets. Still, they may have a low-income stream, such as retirees, self-employed individuals, or irregular income sources. - What types of assets are considered in asset-depletion mortgage loans?
Lenders typically consider various liquid assets, including cash, stocks, bonds, mutual funds, retirement accounts, and other investments. Real estate holdings may also be considered in some cases. - Are there any restrictions on the use of assets in asset-depletion mortgage loans?
Lenders might enforce limitations on the permissible asset types for consideration and may necessitate documentation to authenticate ownership and assess value. Moreover, particular assets like retirement accounts could incur penalties for premature withdrawal, potentially impacting eligibility. - How do lenders calculate the income from assets in asset-depletion mortgage loans?
Lenders use a formula to determine the monthly income that can be derived from the borrower’s assets. This formula typically involves multiplying the asset value by a predetermined depletion rate to estimate the monthly income. - What are the advantages of asset-depletion mortgage loans?
Asset-depletion mortgage loans can offer an alternative financing avenue for borrowers who might not meet the criteria for conventional mortgages based on income alone. They can also allow borrowers to access home financing without liquidating their assets. - Are there any disadvantages to asset-depletion mortgage loans?
Asset-depletion mortgage loans may have higher interest rates or fees than traditional mortgages. Additionally, borrowers must be mindful of depleting their assets, which could impact their long-term financial security. - How can I determine if an asset-depletion mortgage loan is right for me?
Consider consulting with a mortgage lender or financial advisor to evaluate your financial situation and explore your options. They can help determine if an asset-depletion mortgage loan aligns with your goals and financial needs. - Where can I find lenders who offer asset-depletion mortgage loans?
You can search for mortgage lenders specializing in asset-depletion loans or inquire with traditional lenders about their offerings in this niche. Working with a mortgage broker may also help you find lenders with experience in this type of financing.
