How to Use Asset Depletion to Qualify for a Mortgage

Using Asset Depletion To Qualify For a Mortgage

If you are retired, semi-retired, or have a substantial amount of assets but limited regular income, an asset depletion mortgage can help you purchase or refinance a home without requiring pay stubs or tax returns. Lenders use assets like investments, cash, or retirement accounts to turn them into income that meets their rules for how much debt you can have.

Explore how to convert retirement and liquid assets into qualifying income through asset depletion mortgages. Review the eligibility criteria, calculation methods, and approval process.

At Gustan Cho Associates, we assist individuals who have been rejected by other lenders, particularly those with complex financial situations. This guide shows you how to use asset depletion to get a mortgage, including which assets count, how income is figured out, and how to get ready for approval.

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What Does Asset Depletion Mean?

Lenders employ asset depletion to calculate qualifying income based on liquid assets. Rather than relying solely on employment income, lenders distribute the value of assets over a specified period, typically ranging from 36 to 120 months.

It is Important to Understand The Steps Involved Before Considering Asset Depletion.

1. First, assess your liquid assets, such as checking and savings accounts, stocks, bonds, mutual funds, and retirement accounts. Next, determine the depletion period, which is typically 36 to 120 months.
2. Divide the total value of your liquid assets by the chosen depletion period. For example, $500,000 divided by 36 months equals a monthly qualifying income of $13,888.
3. You may combine other income sources, such as Social Security or pension payments, with asset depletion income to strengthen your mortgage application.

How To Use Asset Depletion To Qualify For a Mortgage

Securing a mortgage may be challenging, particularly for retirees or individuals with substantial assets but limited regular income. Asset depletion enables applicants to demonstrate qualifying income by utilizing liquid assets. Gustan Cho Associates provides guidance on leveraging assets to achieve homeownership. This guide details the asset depletion process for mortgage qualification.

Understanding Asset Depletion Mortgages

An asset depletion mortgage allows you to qualify based on your assets rather than your regular income. Lenders figure out your income by dividing your assets over time. This is a suitable option for retirees who rely heavily on their investments.

• High-net-worth individuals who are between jobs.
• Self-employed individuals who report a minimal income.
• Individuals with significant savings but no W-2 or 1099.

Depending on asset levels, loan amount, and credit profile, asset depletion may be available through conventional, jumbo, or specialized loan programs.

After Determining Eligibility, Consider The Following Scenarios in Which Asset Depletion May Be An Appropriate Solution

Asset depletion is a good option if you meet the following criteria:

• You have a substantial amount of liquid assets, but your income is relatively low.
• You have tax returns with numerous deductions, and your earnings are inconsistent.
• You are retiring soon, and your income will be coming from an investment instead of a standard salary.
• You want to buy a house, but you don’t want to sell your investments at this time.
• You have good credit and savings, but your DTI is too high.

If a lender assesses your income as insufficient, asset depletion may serve as a viable alternative for qualifying for a mortgage.

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Identifying Who May Benefit From Asset Depletion Helps Determine If It Is a Suitable Mortgage Qualification Strategy

Retirees with significant savings but no steady income may benefit from asset depletion.

• Self-employed professionals with inconsistent cash flow may also find asset depletion beneficial.
• Individuals with substantial wealth in securities and investments may qualify through asset depletion.
• Borrowers with nontraditional income profiles or significant investment wealth can also use asset depletion.
• Cash and savings accounts
• Mutual funds, stocks, and bonds
• Retirement plans (401(k), Roth IRA, and IRA)
• Trust accounts
• Certificates of deposit (CDs)

Note that real estate and business investments are generally excluded from asset depletion calculations, as they are not considered liquid assets.

Lender Requirements For Asset Depletion

Lenders may have different requirements for asset depletion, but several key criteria are commonly considered:

1. Minimum Asset Amount: Most lenders require a minimum of $100,000 in cash or liquid assets to qualify.
2. Credit Score: A minimum credit score of 620 is typically required to use asset depletion for a mortgage.
3. Debt-to-Income (DTI) Ratio: The DTI ratio, including asset depletion income, usually must be between 45% and 50% to meet lender guidelines.

Advantages of Using Asset Depletion

• Applicants with significant income from asset depletion may qualify for higher mortgage amounts.
• Flexible Income Documentation:
• Asset Depletion Benefits: Those Without Regular Employment or a Consistent Paycheck.
• Applicants can demonstrate asset value without having to liquidate their investments.

Potential Disadvantages

• Asset balances will diminish over time as they are used to generate qualifying income.
• Extensive documentation may be needed to verify asset ownership and liquidity.
• Few lenders offer asset depletion mortgage programs.

Asset Depletion Although Specific Programs Vary, The General Methodology Remains Consistent: Approach is Similar

Qualified Assets / X number of months = qualifying monthly income

Asset Depletion Income Example

A typical lender calculation may look like this:
(Qualifying asset amount × allowed percentage) ÷ depletion term (months) = monthly income
Depletion terms are usually 360 months (30 years), 240 months (20 years), or as specified by the lender’s program.

After learning about the calculations, it is essential to understand which assets can be utilized. Lenders look for assets that are easy to turn into cash, easy to prove, and that you can use right away. Assets that are hard to turn into cash, hard to prove, or have rules about taking money out may not count for asset depletion.

Qualifying Liquid Assets

• Checking and savings accounts
• Money market accounts
• CDs (certificate of deposit)
• Brokerage accounts (stocks, bonds, mutual funds, ETFs)

Qualifying Retirement Assets

• 401K & 403b accounts
• IRAs and Roth IRAs
• Pension lump-sum accounts (if accessible)

If you are under retirement age with withdrawal restrictions, some lenders may offer a discount on retirement assets. Assets that usually do not count include:

• Equity in real estate (unless turned into cash-out proceeds and documented)
• Business assets (usually limited unless you can show they are not needed for the business)
• Cryptocurrency (this can vary and may require additional documentation)
• Unvested stock options or restricted shares (this may vary and is case-by-case)

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How Much of Your Assets are Usable?

Lenders almost never use your full account value for asset depletion due to market fluctuations and the ease of accessing your funds.

Typical Allowable Percentages (Examples)

• Cash / savings: usually considered available in full
• Brokerage accounts: usually partially available
• Retirement accounts: typically partially available, depending on withdrawal access and age

The percentage of usable assets depends on loan type, documentation requirements, and risk assessment. It is important to distinguish between asset depletion, asset dissipation, and the use of investment income.
Although often confused, these terms have distinct meanings.

Asset Based Loans

Lenders convert assets into qualifying income for loans without requiring withdrawals from those assets.

Asset Dissipation

Some lenders use ‘dissipation’ interchangeably with depletion as internal terminology.

Investment Income (Dividends/Interest)

Investment income utilizes actual, documented income—often taxable income—from statements or tax returns. Balances converted to income alone are not acceptable.
If taxable investment income is low, asset depletion may be more effective than relying solely on dividends or interest.

Asset Based Mortgage Criteria

While criteria may differ by lender, the core components are generally consistent.

Credit Score Criteria

Asset depletion qualification is generally more accessible for applicants with strong credit. Most lenders require good or excellent credit, particularly for larger loan amounts.

Down Payment Criteria

Down payment size varies based on loan purpose and collateral:

• There is generally a lower down payment requirement for a primary residence loan.
• For second home and investment property loans, the down payment is generally higher.

Reserve Criteria

Applicants utilizing asset depletion are often required to demonstrate that they have sufficient remaining assets after loan closing. Maintaining adequate verified reserves strengthens the application and indicates financial stability.

DTI Criteria

Even with asset based, lenders evaluate the debt-to-income ratio and require that converted asset income meets established underwriting criteria.

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Step-by-Step: Using Asset Based Loans for Qualification

1) Identify Assistance is provided in identifying and inventorying eligible assets, including cash, brokerage, and retirement accounts.

2) Identify the Most Suitable Loan Program

Based on your profile and loan size, this may include:

• Jumbo loans
• Structured Non-QM asset based loans
• Alternative documentation options (bank statement, DSCR, etc.) if more appropriate

3) Provide Proper Documentation Regarding Your Assets

Prepare to show:

• Most current statements (usually 2 months, sometimes older)
• Justifications for large deposits or recent transfers
• Proof of ownership and access

4) Run the Asset Depletion Calculation

The qualifying income generated from assets is calculated, and the debt-to-income ratio is assessed for the selected loan program.

5) Optimize Loan Structure to Facilitate Approvals

In some cases, getting approved may mean changing how your loan is set up:

• Modifying the down payment
• Paying off or merging debts to enhance DTI
• Opting for a different loan term or product
• Presenting additional compensating factors

6) Submit and Address Underwriting Conditions

Providing clear and well-documented assets facilitates a streamlined process for asset depletion loans.

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How to Prevent Common Mistakes that Can Lead to Your Asset Depletion Loans Getting Avoid transferring substantial sums immediately prior to application. Untraceable or unusually large transfers may delay processing or necessitate additional documentation. onal steps.

Misuse of Business Funds

Business owners need the lender’s approval to use business funds and must demonstrate that this money is not required for daily business operations.

Considering Retirement Accounts Count by Default

Retirement accounts may be ineligible due to age restrictions or withdrawal limitations. Verify eligibility before including these accounts in your application.

Ignoring Post Closing Reserves

Applicants may initially appear to qualify but risk denial if excessive funds are allocated to the down payment, leaving insufficient reserves post-closing.

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The following section addresses frequently asked questions regarding the use of asset depletion for both home purchase and refinance scenarios.
Asset depletion for a home purchase
Yes. Asset depletion helps most borrowers purchase a primary or second home, or an investment property, depending on the program.

Refinancing with Asset Depletion

Yes, and it is often even more useful for:

• Rate/term refinance after retirement.
• After understanding the process, you may be curious about the typical timeline for asset depletion loans.

This depends on the specific documentation and underwriting requirements, but usually:

• Pre-approval: once the assets are verified and calculated
• Underwriting: after the entire loan package is submitted
• Typical closing times apply, usually several weeks, if documents and appraisals are completed promptly.

Loans are processed more quickly when there are fewer accounts and statements are straightforward.

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Engaging with Gustan Cho Associates can simplify the process of evaluating your mortgage options and managing asset depletion.

While many lenders do not accept non-traditional income sources, Gustan Cho Associates leverages substantial assets to facilitate loan approval.

• Pick the most appropriate loan program.
• Accurately calculate qualifying income.
• Organize documentation the right way.
• Minimize conditions and prevent delays.

Asset Depletion Mortgage FAQs

What is an Asset Depletion Mortgage?

• It means qualifying for a mortgage by calculating your assets to generate an income stream, rather than relying on traditional income from an employer.

Do I Need to Withdraw Money from My Accounts to Meet the Qualification Requirements?

• Generally, no. Most accounts are assessed for income calculation and do not require withdrawals.

What Accounts Can I Use For Asset Depletion?

• Typically, checking and savings accounts, brokerage accounts, and certain retirement accounts qualify, depending on the specific program.

Can I Use a 401(k) or IRA for Income from Asset Depletion?

• In most cases, yes, although lenders may have specific policies for these accounts and will require documentation showing the funds can be withdrawn.

Is Asset Based Mortgages Only For Retirees?

• No. Asset depletion can benefit individuals with substantial assets who lack conventional income.

Do State Income Asset Based Loans Require Tax Returns?

• Not if you use a program designed for borrowers whose tax returns do not reflect their true financial situation.

Can Asset Based Help Me Qualify With High DTI?

• Yes, because it can help increase qualifying income.
• You can also improve DTI by reducing certain obligations.

Are Asset Based Mortgages Considered Non-QM?

• Some mortgages fall into the Non-QM category, but asset depletion may also be available with certain conventional or jumbo loans.

How Much Down Payment Do I Need?

• The required down payment depends on your loan type, occupancy status, credit score, and available reserves.
• For primary homes, down payments are usually lower than for second homes or investment properties.

What Documents Do I Need?

• You typically need to provide recent asset statements, proof of ownership, and documentation for large deposits or transfers of ownership. \Other requirements may vary by program.

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How Gustan Cho Associates Can Help

Mortgage lenders tailor offers based on asset based loans, allowing self-employed individuals, retirees, and high-net-worth clients to utilize their liquid assets to secure a home.

At Gustan Cho Associates, our experienced mortgage professionals guide you through the process and help you connect with the most suitable lenders.

Gustan Cho Associates specializes in finding optimal mortgage solutions. For more information, visit www.gustancho.com.
Gustan Cho Associates supports asset depletion and other unique mortgage scenarios.

Our team at Gustan Cho Associates will:

• Review your financial records and assess your eligibility.
• Help you collect all the required documents.
• Refer you to lenders offering asset depletion programs.
• Guidance throughout the mortgage approval process to ensure efficiency and clarity.

Contact Gustan Cho Associates to learn how asset based mortgages can be used to qualify for a mortgage. The team will review your asset profile, calculate qualifying income, and identify the most suitable program, ensuring a streamlined approval process without lender overlays.