Updated: Oct 2
Are you having trouble qualifying for a home loan due to unconventional income sources? An asset depletion mortgage may be exactly what you need! It's a unique type of loan that turns your liquid assets into countable income.
Dive in to uncover how this special mortgage operates, who can use it, and its benefits and drawbacks. Intrigued? Let's unravel the mystery together!
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✔ An asset depletion mortgage or an asset depletion loan is a unique type of loan that allows borrowers with unconventional income sources to qualify for a home loan by using their liquid assets, such as retirement accounts or investment properties, as countable income.
✔ This type of mortgage is beneficial for self employed individuals, retirees, and those with substantial assets but limited traditional income documentation.
✔ Asset depletion mortgages have several advantages, including access to home loans even without conventional income sources, flexible income calculation based on assets, the potential for higher loan amounts compared to conventional loans, and diverse eligible assets like bank accounts and investment accounts.
What is an Asset Depletion Mortgage?
An Asset Depletion loan is a type of asset based mortgage that allows borrowers to use their assets, such as retirement accounts or investment properties, to qualify for a mortgage based on the value of those assets.
Definition and Purpose
An asset depletion loan changes your cash into income. This helps you get a home loan. Many people use it: self-workers, retirees, and rich people too. It is useful for those who can't show their money the usual way like pay stubs or tax returns.
By using this type of loan, you can use things like bank accounts or retirement savings to qualify for a loan. They decide how much to give based on what money you have and how long the loan will last.
With this plan, buying a house becomes easier if you don't have regular earnings but do own plenty of assets.
How Asset Depletion Loans Work
Asset depletion loans are a type of home loan. They help people who have a lot of money in savings but not much monthly income. Here is how these loans work:
❶ First, you need to have savings or other assets like stocks and bonds. These assets can be in bank accounts, money market accounts, investment and retirement accounts. Savings accounts are the easiest because 100% of the balance can be used with our asset depletion mortgage program.
❷ The lender looks at all your money and figures out how much monthly income you could get if you spread it out over many years.
❸ The calculated amount is added to your actual monthly income from work or other sources.
❹ This total figure becomes your "income" for the mortgage loan application.
❺ You apply for an asset depletion mortgage using this higher income figure.
❻ If approved, the home loan amount depends on your new "income", credit scores, and current debts.
❼ Each month you make a mortgage payment just like with any other type of home loan.
Eligibility and Requirements for an Asset Depletion Mortgage
To be eligible for an Asset Depletion Mortgage, borrowers must have qualified assets and meet certain income calculation requirements.
For an asset depletion mortgage, you can use many types of assets. These assets are things like bank accounts, CDs, and money market accounts. You can also use investment and retirement accounts.
Stocks and bonds count too, typically only up to 80% of their worth. For retirement funds, they typically only count for 70%. You should be at least 59 1/2 years old before using a retirement account as an asset in this loan type.
The exact percentage of usable assets can vary across lenders, thats why it's important to speak to an experienced mortgage broker at Bennett Capital Partners.
Calculation of Income
To determine the income for an asset depletion mortgage, lenders consider the borrower's monthly income based on their assets and the loan terms. Liquid accounts can be used up to 100%, while stocks and bonds are typically valued at 80% of their remaining worth.
Retirement assets can account for up to 70% of the total value. It's important to note that eligibility depends on factors like age, credit score, and down payment. For retirement accounts to be considered as assets, borrowers usually need to be at least 59 ½ years old.
Unlike traditional mortgages, asset depletion loans do not require a calculation of the borrower's debt-to-income ratio in most cases.
Pros and Cons of An Asset Depletion Loan
Asset depletion mortgages have both benefits and drawbacks that borrowers should consider.
Benefits of Asset Depletion Loan Program
An Asset depletion loan offers several benefits for individuals looking to obtain a mortgage. Here are some advantages of our asset depletion program:
✔ Access to Home Loans: Individuals with substantial assets but no traditional income documentation to qualify for a home loan. This opens up the opportunity for homeownership, even for those who may not meet the requirements of conventional mortgages.
✔ Flexible Income Calculation: Unlike traditional mortgages that rely on verifiable income, asset depletion programs consider the borrower's assets as a source of income and not employment income. This is an asset based loan with the flexibility is particularly beneficial for self-employed individuals, retirees, and high-net-worth individuals who may have significant assets but limited or non-traditional income streams.
✔ Higher Loan Amounts: Borrowers can potentially qualify for larger loan amounts compared to traditional loan programs. By leveraging their assets to calculate their income, borrowers may be able to access more funds for purchasing their desired property.
✔ Diverse Eligible Assets: An asset depletion loan typically consider various types of assets in their calculations, including liquid accounts like savings and money market accounts, investment accounts, retirement funds, stocks and bonds, and even rental properties or trust assets. This broad range allows borrowers to tap into different sources of wealth and maximize their chances of qualifying for a mortgage.
✔ Faster Approval Process: Since an asset depletion loan will focus less on employment income documentation and more on the borrower's assets, the approval process tends to be quicker compared to traditional mortgage loans. This can be advantageous when time is a priority in securing a home purchase.
✔ Competitive Interest Rates: Despite being an alternative option to conventional mortgage loans, asset depletion loan often comes with competitive interest rates that are comparable to standard home loans. Borrowers can still enjoy favorable terms while leveraging their assets as income.
✔ Minimal Debt Consideration: Asset depletion mortgage programs typically put less emphasis on existing debts or credit scores than traditional mortgage lending requirements do. Therefore, borrowers with higher levels of debts or lower credit scores may still have a chance to qualify for an asset depletion mortgage.
✔ Lower Closing Costs: An Asset depletion loan may offer reduced closing costs compared to traditional mortgages. This can help borrowers save money during the home buying process and make homeownership more affordable.
Drawbacks of Asset Depletion Mortgages
Asset depletion mortgages also have some drawbacks that you should be aware of:
✔ Higher interest rates: They may come with higher interest rates compared to traditional mortgages. This means that you might end up paying more in interest over the life of the loan.
✔ Stricter qualification requirements: Lenders may have stricter qualification requirements and higher credit score thresholds for asset depletion mortgages. This could make it more difficult for some borrowers to qualify for this type of mortgage.
✔ Shorter loan terms: They often come with shorter loan terms compared to traditional mortgages. This means that you will have a smaller window of time to repay the loan, which could result in higher monthly payments.
✔ Detailed documentation required: When applying for an asset depletion mortgage, you will likely be required to provide detailed documentation and proof of your liquid assets. This can be time-consuming and may require you to gather and organize a lot of paperwork.
✔ Limitations on Accessing liquid assets: With an asset depletion mortgage, your ability to access and use your liquid assets during the loan term may be limited or restricted. This could impact your financial flexibility and ability to handle unexpected expenses.
✔ Higher closing costs and fees: Asset depletion mortgages may have higher closing costs and fees compared to traditional mortgages. This means that you will need to budget accordingly for these additional expenses when considering this type of mortgage.
Is an Asset Depletion Mortgage Right for You?
Considerations for choosing an Asset Depletion Mortgage include evaluating your assets, comparing alternative mortgage options, and understanding the pros and cons of this type of loan.
Considerations for Choosing an Asset Depletion Mortgage
When considering an asset depletion mortgage, there are a few important factors to keep in mind. First, you should assess your eligibility and requirements for this type of loan. Make sure you have qualified assets, such as bank accounts and retirement funds, that can be used to qualify for the mortgage.
Additionally, consider the pros and cons of asset depletion loans. While they don't require proof of employment income and can benefit self-employed individuals and retirees, they may come with higher interest rates.
Finally, explore alternative mortgage options to see if there is a better fit for your financial situation. By carefully considering these factors, you can determine whether an asset depletion mortgage is the right choice for you.
Alternative Mortgage Options
If an asset depletion mortgage doesn't seem like the right fit for you, there are alternative mortgage options to consider. These include:
➡️ Conventional Loans: Traditional mortgages that require proof of employment income and follow standard lending requirements.
➡️ Cash-Out Refinancing: This option allows homeowners to refinance their existing mortgage and receive cash from the equity in their home.
➡️ Bank Statement Loans: Designed for self-employed borrowers, these loans use bank statements as proof of income instead of traditional documentation.
➡️ Government-Backed Loans: Programs such as FHA loans, VA loans, and USDA loans provide financing options with reduced down payment requirements and flexible qualification criteria.
➡️ Asset-Based Loans: Similar to asset depletion mortgages, these loans use a borrower's assets as collateral instead of relying on traditional income verification.
In conclusion, an asset depletion mortgage can be a viable option for individuals who may not have traditional sources of income or who cannot provide extensive documentation. By using their liquid assets such as bank accounts, retirement savings, and investments, borrowers can qualify for this type of mortgage loan.
The loan amount is determined based on the borrower's monthly income calculated from their assets and the terms of the loan. While there are eligibility requirements to consider, including factors like age and credit score, asset depletion loans often do not require the calculation of a borrower's debt-to-income ratio.
Overall, this type of mortgage can provide flexibility for those with substantial assets but limited verifiable income.
What is an asset depletion mortgage?
An asset depletion mortgage is a type of loan that considers a borrower's total assets, such as savings, investments, and retirement accounts, to determine their ability to repay the loan instead of relying solely on income.
How does an asset depletion mortgage work?
In an asset depletion mortgage, the lender calculates a hypothetical monthly income by dividing the borrower's total liquid assets by a predetermined number of months. This calculated amount is then used to qualify for the loan.
Who can benefit from an asset depletion mortgage?
An asset depletion mortgage can benefit borrowers with significant assets but limited or unpredictable income sources, such as retirees or self-employed individuals who may face difficulty qualifying for traditional mortgages based on income alone.
Are there any risks associated with an asset depletion mortgage?
One risk associated with an asset depletion mortgage is that if the borrower depletes their assets during the term of the loan, they may face challenges in meeting future financial obligations. Additionally, interest rates and terms for these types of loans may vary depending on lenders' criteria.
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners, Bus. NMLS # 2046828. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.
Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.
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