Can I qualify for a mortgage based on my assets?
Not all mortgage borrowers have traditional means of employment or income.
In fact, there are many people who fit into non-traditional income categories like:
You are self-employed but have a minimal income. You are retired (or almost retired). They earn relatively little or no income. You have no record of employment
If any of these apply to you but you have significant assets such as savings, investments, or retirement accounts, you may qualify for an asset depletion mortgage program.
Check Your Mortgage Eligibility (November 4, 2020)
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What is an Asset Depletion Loan?
Asset depletion, also known as "asset loss", is one way to qualify for a loan that uses significant assets instead of labor income.
A capital exhaustion mortgage is your monthly “income” by dividing your total cash assets by 360 months (the life of most mortgage loans).
In this way, you can prove that you have enough money to cover the loan even without regular income from employment.
Using funds from asset depletion does this Not means that you must qualify based solely on your assets. You can use it as an additional source of income on top of the regular income you are currently receiving.
However, borrowers who use an asset depletion program to qualify are not required to demonstrate any other sources of income or employment. If you have enough assets to pay the loan and the regular cost of living, you will be able to qualify based on this calculation alone.
In addition, mortgage borrowers do not need to cash in their assets immediately. The assets are only used to demonstrate the ability to make mortgage and home payments.
Check your new plan (November 4, 2020)
How Asset Depletion Mortgages Work
Asset depletion loans use your assets as collateral in lieu of your income.
This program allows you to exhaust your assets to count this money as income for the duration of the loan.
There are some facts and figures that borrowers need to understand before diving into an asset depletion program.
Eligible Assets for Mortgage Qualification
First, understand that only certain types of assets can be used to qualify for mortgages. These typically include:
Current accounts or savings accounts Money market accounts Certificates of deposit (CD) Investment accounts such as stocks, bonds and mutual funds Retirement accounts such as 401,000 or IRA
Depending on the age of the mortgage borrower and the possible penalties for accessing funds in the account, not all retirement accounts are qualified.
Lenders may only partially or not credit assets in retirement accounts if the mortgage borrower is not yet at or near retirement age.
How much of your wealth is counted?
Even for eligible assets, lenders do not necessarily count the full amount on your mortgage income.
In the case of liquid funds – such as a savings account – the lenders usually count 100 percent of the funds. The fixed assets can be calculated on around 70 percent of your total inventory. With retirement accounts, depending on the age of the borrower, only 50 to 70 percent of the funds can be counted
The exact calculations vary depending on the lender. Therefore, it is especially important to compare different mortgage lenders and find a program that suits your needs.
The stock of assets is divided by 360. This amount will be used as monthly income when qualifying.
Once your total assets have been calculated, the balance will be divided by 360 (regardless of the loan terms) and divided into monthly installments. These installments are then used to meet the income requirements for the loan.
Mortgage Depletion Requirements
Lenders do not just look at a borrower's assets when they qualify for a asset depletion loan. You also need to meet the mortgage loan requirements.
Since these loan programs are not regulated by any national or state agency, lenders must set their own requirements.
This means that the guidelines for asset depletion loans can vary widely from lender to lender.
Typically, borrowers should expect to need:
A deposit of 25 to 30 percent. A credit score of 680-700 or higher. A debt to income ratio of less than 50 percent
Example of a capital depletion mortgage
Let's say a 49 year old mortgage borrower has cash and cash equivalents of $ 2,000,000 and retirement or investment accounts of $ 500,000.
This is how your monthly income could be calculated.
Retirement Account – 70% of $ 500,000 = $ 350,000 Total Assets Counted – $ 2,000,000 + $ 350,000 = $ 2,350,000 Monthly Income – $ 2,350,000 / 360 =$ 6,527
In this case, the lender will calculate the borrower's maximum mortgage payment based on a monthly "income" of $ 6,527.
Remember, this is your total income – not your maximum mortgage payment.
The amount you can spend on a mortgage will depend on your existing debt and the maximum debt to income ratio of the lender.
If the lender enforces a maximum debt-to-income ratio of 36 percent, the maximum possible mortgage payment in this scenario is $ 2,350.
Suppose the borrower is already in debt. This will reduce the amount they can spend on their mortgage each month.
In this scenario, if the borrower already owes $ 350 per month, the maximum mortgage payment will be reduced to $ 2,000 per month.
Combined with the borrower's interest rate, this number can be used to determine what loan amount they qualify for and what the home price they can afford.
Should You Use A Mortgage For Depletion?
Wondering whether or not you are a good candidate for an asset depletion program?
First, answer these questions.
Are you retired with very little steady income (or no income)? Are you self-employed but have little to no income? Are your assets held in the US? Do you have unrestricted use trust assets? Do you have 25 to 30 percent for the deposit?
If you answered yes to any of these questions but are wealthy, an asset exhaustion loan might be an ideal solution.
However, this is not the only option.
For example, self-employed home buyers may not have the W2s or employment history required to traditionally qualify for mortgages. However, they often receive a bank statement loan that takes regular monthly cash payments into account instead of their tax returns.
Finding Lenders for Asset Depletion
Not all lenders offer asset exhaustion mortgages. Additionally, not all loan programs allow for asset depletion as an acceptable source of income.
Many of the larger banks offer asset exhaustion mortgages. You may also find “portfolio lenders” who offer asset depletion programs.
Be aware, however, that the credit guidelines vary depending on the lender. You want to shop and compare prices, closing costs, and closing times before making your decision.
As with all mortgages, it is important to find a wealth exhaustion loan that offers interest rates and terms favorable to your situation. Your interest rate will continue to affect your monthly payment and will have a huge impact on your long-term loan costs.
Check your new plan (November 4, 2020)