Freddie Mac Asset Depletion Mortgage Lending Guidelines
This article covers the Freddie Mac asset depletion mortgage guidelines
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?
Asset depletion means using or depleting your savings overtime 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. 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.
Who Benefits From Asset Depletion Mortgages?
Asset depletion mortgages can help anyone with income challenges qualify for a mortgage. This includes:
- 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 Non-QM 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.
Get Expert Help With Asset Depletion Mortgages
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].