Asset Depletion Mortgage Guidelines On Home Purchase Transactions

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This BLOG On Asset Depletion Mortgage Guidelines On Home Purchase Transactions Was PUBLISHED On July 15th, 2020

Asset Depletion Mortgage Guidelines On Home Purchase Transactions

Asset Depletion Mortgage Guidelines is different depending on the lender.

  • Asset Depletion Loans are non-conforming loans
  • Portfolio lenders normally offer asset depletion loans
  • Asset Depletion Mortgage Guidelines are not uniform
  • It varies from lender to lender
  • Gustan Cho Associates offers various types of Asset Depletion Mortgages
  • Borrowers assets are used versus income docs
  • There are no income tax returns required

In this article, we will discuss and cover Asset Depletion Mortgage Guidelines On Home Purchase Transactions.

What Are Asset Depletion Loans

What Are Asset Depletion Loans

Borrowers with substantial assets and very little wages, an asset depletion mortgage loan program may be the best.

  • It is a non-traditional form of financing
  • Lenders use borrowers assets as income tool
  • It is often called asset-based mortgages
  • Others refer them as asset dissipation mortgage loans
  • Other investors may refer to them as high asset and no income verification loans
  • Regardless, it is the same loan program and has the same meaning

Borrowers do not need a job or provide lenders with income tax returns.

How Asset Depletion Mortgages Work

How Asset Depletion Mortgages Work

Borrowers with substantial assets but little to no income can use their assets for lenders to use as income.

  • Gustan Cho Associates has multiple asset depletion loan programs
  • Asset Depletion Mortgage Guidelines varies depending on the loan program
  • In general, the way mortgage underwriters qualify income is by taking borrowers total assets and divide it by 60 months
  • Underwriters use 100% of the assets that are considered liquid assets
  • Qualified income is calculated by taking the total liquid assets and dividing it by 60 months
  • 90% of the assets in a borrowers retirement account is used as liquid assets
  • Monthly qualified income is taking the total liquid assets and dividing it by 60 months

The above is the simple formula used in calculating monthly hypothetical income when calculating debt to income ratios.

Case Scenario On How Underwriters Calculate Income

Case Scenario On How Underwriters Calculate Income

Best way to explain on how underwriters calculate income on asset depletion loans is using a case scenario:

  • Say borrower has $500,000 in their bank account
  • They also have $400,000 in their retirement account
  • They also have $200,000 in their stock and securities account

Here is how it works:

  • $500,000 x 100% = $500,000
  • $400,000 x 90% = $360,000
  • $200,000 x 90% = $180,000
  • Total eligible amount = $1,040,000

The total amount of qualifying assets of borrowers is $1,040,000. Underwriters will then divide the $1,040,000 by 60 months. 

The borrowers monthly income will be $17,666.70. This figure will be used as a monthly income when calculating debt to income ratio.

Case Scenario Of Asset-Depletion Mortgage

Another case scenario of asset depletion mortgage income qualification:

Borrowers have $1,000,000 in liquid cash in their bank account. $600,000 in their IRA pension account. $200,000 in their pension account. $150,000 in their stock and bond account. This one particular investor will use 70% of retirement accounts versus 90%. It is up to the individual investor on the percentage of the retirement account they allow to be used as liquid assets:

Here is how it works:

  • $1,000,000 x 100% = $1,000,000
  • $600,000 x 70% = $420,000
  • $200,000 x 70% = $140,000
  • $150,,000 x 70% = $105,00
  • Total eligible amount = $1,665,000

The total assets that this borrower can qualify for is $1,665,000. Take this figure and divide it by 60 months. The yielding figure of  $27,750 would be the maximum amount of monthly payment the borrower will qualify for on the asset depletion loan program.

Types Of Assets That Can Be Used

Types Of Assets That Can Be Used

The following assets can be used:

  • bank accounts (checking or savings), money market accounts
  • CD (certificate of deposit)
  • investment accounts (such as stocks, bonds, and mutual funds)
  • retirement accounts (such as a 401k or IRA)

Borrowers Asset Depletion Mortgage Guidelines And Requirements

Borrowers Asset Depletion Mortgage Guidelines And Requirements

The higher the credit scores, the more solid a borrower is.

  • We can approve borrowers with credit scores down to 500 FICO
  • Every borrower’s file is unique and different
  • We can make an exception on a case by case basis
  • There are no wage requirements
  • Borrowers under 50 years old may be able to use retirement assets as qualified assets
  • Asset depletion programs are eligible for owner occupant, second, and investment homes
  • There are no maximum loan limits
  • Ownership can be held under trust, LLC, and/or corporation
  • 25% down payment is normally required
  • Single-family homes, condos, non-warrantable condos, condotels, and 2 to 4 unit properties are eligible
  • Borrowers need 110% of the loan amount in assets
  • For example, if the borrower is has a new $500,000 asset depletion mortgage loan, the borrower needs to have at least 110% of the $500,000 or $550,000 in assets

Asset Depletion Loans are becoming more and more popular. This holds true for retired home buyers with plenty of assets but little to no income. The Gustan Cho Team are experts in alternative financing such as asset depletion and non-QM loans. We are also experts in bank statements loans for self employed borrowers.

2 Comments
  1. ron hirsch says

    Hello, I think there are some significant typos/errors in this article. In two places it says, “dividing it by 60 months”, while most of the article mentions 360 months.

    And in an example, it says both, “The total amount of qualifying assets of borrowers is $920,000”, and “The total qualifying amount of assets that you can use is $460,000.” The rest of the example is based on $920,000, not $460,000.

    Thanks for this information.

    Read more https://gustancho.com/asset-depletion-mortgage-guidelines

    1. Gustan Cho, NMLS 873293 says

      Thank you Ron. I see what you mean. Let me take a look at this and will correct the math. Thank you again.

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