Freddie Mac Asset Depletion Mortgage Lending Guidelines
Freddie Mac Asset Depletion loan program is a great mortgage loan program for wealthy borrowers where they can use their assets in lieu of providing income documents. Can you get a mortgage if you have lots of investments or savings but little or no income? In many cases, you can convert assets into income (for mortgage qualifying purposes) by using asset depletion.
What Is Asset Depletion Mortgages?
Asset depletion means using or depleting your savings over time to pay living expenses. For instance, when you retire, you might not be earning income, but you can continue to live normally because you use your savings to pay your mortgage and other costs. The typical way for mortgage lenders to calculate asset depletion income is to take some percentage of your savings, investment, or retirement account, divide it by the number of months in your loan term (360 months for a 30-year mortgage), and add that amount to your qualifying income.
How Are Assets Used For Determining Ability To Repay on Asset-Depletion Mortgages?
The exact percentage depends on the type of account — typically, you can use 70% of stocks and bonds, 60% of retirement funds, and 100% of cash in a savings account. Suppose that you have $300,000 in stocks and bonds. A lender might multiply that by .7 to get 70%, which is $210,000. Divide that amount by 360 months for a 30-year loan and you get to add $583 per month to your qualifying income. Last year, however, Freddie Mac revised its guidelines, and they are a lot more generous. In this article, 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.
How Does Freddie Mac Asset Depletion Work?
The new rule per Freddie Mac Asset Depletion:
- A borrower may use 70% of the balance of an investment account and divide that number by 240 months.
- The end result may be used as a qualifying monthly income.
Under the new guidelines, you’d still be able to deplete $210,000 of $300,000 in savings. But now you get to add $875 per month to your qualifying income because you’re dividing by 240 instead of 360.
Am I Eligible for Freddie Mac Asset Depletion?
Not everyone is eligible for an asset depletion loan under Freddie Mac. You have to meet these requirements:
- Your maximum loan is 80% of the property value.
- You cannot use asset depletion for cash-out refinancing.
- The property must be a 1- to 2-unit primary residence or second home — no rentals.
In addition, you must meet all other Freddie Mac underwriting guidelines— for example, credit score minimums and maximum debt-to-income ratios.
Types of Borrowers Who Benefit From Asset Depletion Mortgages?
Asset depletion mortgages can help anyone with income challenges qualify for a mortgage.
This includes the following:
- Applicants who are retired and living off of their savings (perhaps in addition to social security and/or pension income)
- Self-employed borrowers whose taxes show less income than what’s available to pay their mortgage
- Other borrowers who need to show more income or who have difficulty proving their income
Asset depletion is an additional tool to help you qualify more easily for a mortgage. Even boosting your qualifying income by $200 a month can make the difference between being approved or declined for a home loan.
Freddie Mac Asset Depletion Versus Traditional Mortgages
We have offered asset depletion loans for non-QM mortgages for a long time:
- Non-QM loans often offer more flexible guidelines — some allow you to deplete higher percentages of assets (90% instead of 70%, for example) or divide assets by lower numbers (for example, 60 months instead of 240 months) to come up with qualifying income.
- You may not need tax returns to qualify using asset depletion with a non-QM loan.
- Many Americans do not know that you can obtain a conventional mortgage without the standard forms of income
- Non-QM asset depletion loan interest rates are usually a little higher than those of Freddie Mac loans.
Mortgage Lenders Experts on Asset-Depletion Loans
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.
Asset depletion mortgages can help thousands of Americans qualify for home loans. If you have income challenges but are sitting on a nice nest egg, please reach out to Gustan Cho Associates for more information. For questions about asset depletion or mortgage questions in general, call Mike Gracz at 630-659-7644 or text for a faster response. Or send an email to [email protected].
Asset Depletion Mortgage Guidelines For Borrowers Without Income
Non-traditional mortgages came to an abrupt halt after the 2008 mortgage meltdown. Popular loan programs such as stated income, no doc, bank statement loans, and asset depletion loans came to an abrupt halt. The good news is that alternative financing is coming back
Gustan Cho Associates now offers the following:
- Non-QM Loans with no waiting period after bankruptcy and/or foreclosure
- Bank statement loans for self-employed borrowers where no income tax returns are required
- Non-QM Jumbo Loans with credit scores down to 500 FICO
- 95% Loan-To-Value NON-QM Jumbo Mortgages
- 90% Loan-To-Value NON-QM Jumbo Mortgages With Low Credit Scores
- Asset Depletion Loan Programs with no income requirements
Asset Depletion Eligibility Requirements
Every lender has different Asset Depletion Guidelines. Gustan Cho Associates has multiple asset depletion investors. We have lenient Asset Depletion Guidelines. Our Asset Depletion Guidelines are not set in stone. We can make exceptions if borrowers may not meet one or two Asset Depletion Guidelines. Many of these alternative loan programs that were discontinued right after the 2008 mortgage and credit collapse is now coming back.
Benefits Of Asset Depletion Mortgages
Many home buyers, especially retirees, have limited or no traditional income. However, they have assets. Some people have well over in the high six figures in assets. Borrowers with a lot of assets but little to no traditional income can now qualify for home mortgages with our Asset Depletion mortgage program. This unique home loan program allows borrowers with substantial assets and low to no income to qualify for home loans.
Asset Depletion Mortgages for Self Employed Borrowers
Borrowers who benefit from asset depletion loans are business owners who declare low income or losses on their income tax returns but have substantial assets. Also, borrowers who are retired with substantial assets in their retirement and/or stock/securities investment accounts. Until now, only borrowers with qualified income and employment history were the ones that could only qualify for home mortgages. Now, borrowers with substantial assets with no income can qualify for mortgages with asset depletion loans.
How Do Lenders Calculate Income On Asset Depletion Mortgages
Dale Elenteny is our Asset Depletion Mortgage Expert and a Senior Vice President at Gustan Cho Associates at Loan Cabin Inc.
Here is how Dale Elenteny summarizes Asset Depletion Income Calculation:
Asset depletion is a calculation where a borrower’s liquid assets are entered into a calculation to bring up the amount of monthly income they have in order to make mortgage payments. Generally the calculation is a borrowers total assets divided by a set number of months, such as 360 for the standard 30 year loan. Qualifying assets tend to be only liquid assets such as cash, investment accounts and retirement accounts. 100% of the assets in cash accounts and non retirement liquid investment accounts typically qualify. For retirement accounts the amount that qualifies is generally about 70% of the asset base and could potentially be close to 100% if the borrower is over 591/2 years old. Each lender has different asset depletion guidelines but the concept is the same. Check with your lender to see what they are willing to use in their calculation.
How Gustan Cho Associates Calculates Income On Asset Depletion
As mentioned earlier, Gustan Cho has various asset depletion guidelines.
Let’s take an example of one of Dale Elenteny’s borrowers who qualified for a particular asset depletion loan program:
- The borrower had no job but $200,000 in cash and $700,000 in an IRA Account
- The borrower is buying a $250,000 home in Illinois
- We have a program that will take the sum of all liquid assets and we divide the sum by 60 months
- The yielding figure is the qualified monthly income
- On this case, add the $200,000 and $700,000 together
- The sum is $900,000
- Then divide the $900,000 by 60 months
- This figure yields $15,000
- The borrowers qualifying income is $15,000 per month
- Now the down payment required on this particular asset depletion program is a 15% down payment on a home purchase
- So the loan amount is $212,500
- Our investor requires the borrower to have at least 110% of the loan amount or $233,750 in assets
- This borrower has $900,000 which is more assets than the minimum required
This borrower has a loan approval and is scheduled to close in the coming days.
Qualifying For Asset-Depletion Loan Program
Borrowers who do not have a regular source of income but have assets can now qualify for an asset depletion mortgage. The asset depletion loan program is ideal for wealthy borrowers who have substantial assets but do not have a regular traditional income source. Many retirees and business owners are ideal borrowers who can benefit from the asset depletion loan program. Please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected] Gustan Cho Associates has multiple asset depletion loan programs. As long as you have assets, we will match you with a perfect asset depletion loan program for you. Our asset depletion mortgage loan programs are for primary owner-occupant homes, second homes, and investment properties.