This BLOG On Asset Depletion Mortgage Guidelines On Home Purchase Transactions Was Written On January 14th, 2019
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
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
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 360 months
- There are 360 months in a 30 year home loan
- 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
- 70% 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
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 70% = $280,000
- $200,000 x 70% = $1400,000
- Total eligible amount = $920,000
The total amount of qualifying assets of borrowers is $920,00. Underwriters will then divide the $920,000 by 360 months.
The total qualifying amount of assets that you can use is $460,000. You would then take this amount and divide it by 360 months. The total monthly payment borrowers would likely qualify for is $2,555.56.
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:
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 360 months. The yielding figure of $4,625 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
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
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 who are older than 75 years old, we can base the income formula on 120 versus 360 months for payment calculations
- 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
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.