Asset Based Mortgages – Asset Depletion Loans
Home buyers with a high level of liquid assets but very little documented income used to have a difficult time qualifying for a mortgage. After the housing market decline of 2008, various lenders developed a unique and innovative mortgage program called the asset depletion loan which is designed help borrowers to use assets to qualify for a mortgage.
What is an Asset Depletion Loan?
An asset depletion loan is a mortgage program that uses the value of the borrower’s liquid assets to qualify for the mortgage instead of traditional monthly income. Asset based lenders will use a calculation to determine the total loan amount with the idea of depleting those liquid assets over time to pay for the loan.
Asset depletion loans are also called “asset dissipation loans” or “asset backed mortgages” and we will refer to all three of them throughout the article.
Which Assets Qualify for an Asset Depletion Loan?
Asset based lenders will use liquid assets only as a basis for calculating how much you can borrow. If you are considering an asset depletion loan, then these are the assets you can use to qualify:
- Checking and savings accounts (includes money market accounts)
- Stocks, bonds and mutual funds if they can be sold
- 401k and other retirement funds (lenders have age minimums to use these funds)
Keep in mind that some lenders may only allow you to use a portion of your retirement funds.
Examples of assets that do not qualify for an asset based mortgage:
- Other real estate assets
- Automobiles and boats
- Collections of any kind other than coins which have liquid value
- Retirement accounts if you do not meet the lender’s age minimums
How Asset Depletion Loans Work
Asset depletion loans will work a bit differently depending upon the lender. They all start with calculating your total liquid assets to begin with a baseline. Then, the lender will use the total liquid assets and will apply a calculation to determine a monthly gross income amount to use on your loan application.
These are some examples of how various lenders calculate the amount you can borrow. These are just a few examples and it is best to let us help you once you are ready. For the various examples below, we will assume the borrower has $600,000 in liquid assets.
In this example, the lender will allow for you to use your total liquid asset balance to offset the current outstanding debt plus the mortgage amount you are looking for.
$35,000 student loans
$25,000 auto loan balance
$20,000 credit card debt
$80,000 total current outstanding debt
$600,000 liquid assets – $80,000 total current outstanding debt = $520,000 loan amount available.
In this example, the lender will use your total liquid assets and will divide by 60 months. The result of that calculation is what the lender will use as the gross monthly income on your loan application.
$600,000 liquid assets
Divided by 60 months = $10,000 monthly gross income
This income must be used to cover the proposed mortgage payment, plus the other monthly payments that appear on your credit report.
The debt to income ratio must also be within the lender’s guidelines. For example, if the lender allows for a maximum of 50% DTI, then you can only use 50% of the $10,000 monthly gross income referenced above to cover all of those payments.
These are just two examples and some lenders use different calculations. They may divide the total liquid assets by a number that is different than 60. Some lenders may also use a percentage of your liquid assets rather than 100%.
If you are a senior citizen, the lender may reduce the number of months dividing your assets which would allow you to qualify for a larger loan amount.
Requirements to Qualify for an Asset Depletion Loan
In addition to your liquid assets, the asset based lenders will have some or all of the following requirements. Keep in mind that every lender is different and the requirements below may differ. This is where we can help you to determine which asset dissipation mortgage lender is right for you.
- Maximum loan to value ratio of 85%
- Minimum credit score of 500
- Maximum DTI of 55%
- Recent Bankruptcies and Foreclosures permitted
- No social security number required
- Minimum loan amount of $50,000
- Maximum jumbo loan amount of up to $5 million
Asset Depletion Mortgage Lenders
This is a list of a few lenders who offer asset depletion loans. This is just a small sampling and their guidelines and requirements are all different. Each of these will use a different calculation when determining how to use your liquid assets towards qualifying for a mortgage.
- First National Bank of America
- Sprout Mortgage
- First Savings Mortgage
- Citadel Servicing
- ACC Mortgage
We are staying close to all of the lenders in the industry who offer asset dissipation loans. With the constant changes in lender’s offerings and guidelines, it is best that you let us help match you with the best asset depletion lender that is right for your loan scenario.
Asset Depletion Frequently Asked Questions
What are the Asset Depletion Mortgage Rates?
Asset based mortgages are non-conventional mortgages. They are offered by portfolio lenders who are taking on additional risk by providing a mortgage without documenting income. As a result, you can expect the asset depletion mortgage rates to be a bit higher than a conventional loan. The higher your credit score and the more you put down, the lower the interest rate will be.
Do retirement accounts count as assets for a mortgage?
Retirement accounts such as a 401k and pension may count, but some lenders will have restrictions. Some may not allow retirement accounts until you reach a certain age. Others may only allow you to use a percentage of the total in those accounts.
What property types are eligible for an asset depletion loan?
You can finance single family residences, condos and multi-family properties up to 4 units. Some lenders may even allow mixed use properties such as a building that has a store on ground level and apartments above.
Can I get an asset based mortgage without a job?
Asset based mortgages do not require the borrower to have a job. The income needed is generated from the depletion of your liquid assets.
Does the home have to be my primary residence?
You can finance a primary residence or an investment property with asset depletion loans.
Are there loan amount restrictions for asset depletion loans?
The minimum loan amount will likely be $50,000. The maximum will vary by lender but you can get an asset based mortgage for loan amounts greater than $5 million.
Do asset depletion loans have a pre-payment penalty?
Most lenders do not require a pre-payment penalty for primary residences, but they may for investment properties. This is an important question to ask the lender before agreeing to the terms. Pre-payment penalties can often be negotiated out of the loan for a slightly higher interest rate.
We can help you to find an asset depletion mortgage lender in the following states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming