This BLOG On Freddie Mac Asset Depletion Mortgage Lending Guidelines Was PUBLISHED On November 9th, 2020
Many of you follow our website to stay up-to-date with mortgage guidelines.
- Recently Freddie Mac has announced they will continue to accept asset depletion as income
- But now they will give you more income based on your assets
- The Freddie Mac Asset Depletion guideline change went into effect on July 3rd, 2019 but was implemented as of April 3rd, 2019
- These changes are part of Freddie Mac Bulletin 2019 – 7
- Please see Freddie Mac’s page for the entire bulletin
In this blog, we will discuss Freddie Mac Asset Depletion Guidelines. We will detail how to use your assets as qualifying income and go over the changes put in place by Freddie Mac.
Freddie Mac Asset Depletion Versus NON-QM Mortgages
We have offered asset depletion loans for NON-QM mortgages for a long time:
- These programs are a bit more lax with guidelines
- It is great to see Freddie Mac following in the same footsteps
- Many Americans do not know that you can obtain a conventional mortgage without the standard forms of income
- For a barber who has a large sum of assets, this program is a match for them
The old rule per Freddie Mac Asset Depletion:
A borrower may use 70% of the balance of an asset account and divide that number by 360 months. The end result may be used as a qualifying monthly income.
- Borrower has $500,000 in retirement accounts at age 65
- You can use 70% of the asset for income, then divide by 360 months:
- $500,000 * 70% = $350,000
- $360,000 / 360 = $972.22 used for monthly income
How Does The New Rule Work On Asset Depletion
The new rule per Freddie Mac Asset Depletion:
- A borrower may use 70% of the balance of an asset account and divide that number by 240 months
- The end result may be used as a qualifying monthly income
Borrower has $500,000 in retirement accounts at age 65. You can use 70% of the asset for income, then divide by 240 months:
- $500,000 * 70% = $350,000
- $360,000 / 240 = $1458.33 used for monthly income
The new rule now in effect by Freddie Mac Asset Depletion Guidelines allows $486.11 more income compared to the old guideline based on the example above. That can increase a borrower’s buying power by almost $100,000! You have worked hard your whole life to obtain those assets and now it is time to put those assets to work for you.
More Specifics On Freddie Mac Asset Depletion Mortgage Guidelines
More specifics on utilizing this program:
- In order to use asset depletion as income, you must have a 30% equity position in the property
- This program is only for purchasing and rate and term refinancing for a primary residence or a second home
- Freddie Mac Asset depletion is not allowed for cash-out refinancing or buying an investment property per Freddie Mac (we do have NON-QM products available for cash-out refinances and investment properties)
- In short, you must have a 30% down payment when you use asset depletion to purchase a home
- Yes, these are pretty stringent guidelines
- There are many situations where this additional income can be beneficial when qualifying for a house
- The most common occurrence is typically somebody within retirement age who cannot qualify for a home loan based on their social security or pension income
Well they have Assets in the bank, their monthly income is not too high. When they can combine their fixed income and their asset depletion, they then qualify for a home.
Eligibility Requirements On Freddie Mac Asset Depletion Mortgage
What is needed to document assets?
When utilizing asset depletion, there are specific documentation requirements that must be met:
- Only assets from eligible sources are allowed, meaning cash in a safe will not work
- Just like any other mortgage, all assets must be sourced
- If large deposits are shown in the asset accounts, they must conform with Freddie Mac guidelines
- The source of the large deposit will be verified through bank statements
- All asset accounts must be verified with two months of bank statements
- Each statement must include every page from the statement
- We suggest calling us directly with any questions regarding what assets you may and may not use
These guidelines can be confusing, but we are the experts.
Asset Depletion Mortgages Benefits Borrowers With Assets
While we are not sure what sparked the change in the guideline, we believe it has to do with the length of the average American is in their mortgage loan.
- The majority of Americans sell or refinance their home within 5 and 1/2 years
- Now this time may be slightly longer for senior citizens, it is rare for somebody to be in their loan for a full 20 years
- Seems like Freddie Mac is getting their guidelines more in line with the NON-QM mortgage products
- NON-QM mortgage products have picked up traction in today’s rising interest rate environment
- Freddie Mac is changing guidelines based on current market conditions
- They will continue to be at the forefront of conventional mortgage guidelines
This new guideline will help thousands of Americans qualify for more of a home. Freddie Mac understands home values are on the rise. Allowing Americans to utilize their assets to qualify for a mortgage makes sense. This guideline will help everybody in the long run. If you are sitting on the nice nest egg of assets, please reach out to Gustan Cho Associates for more information. For questions about asset depletion or mortgage questions in general, please call Mike Gracz 630-659-7644 or text for faster response. Or send an email to email@example.com.