Do you want to buy a home, but you’re
asset rich, and income poor?
There’s a solution.
Consider an Asset Depletion Mortgage
as a financial tool for establishing qualifying income.
When we discuss Asset Depletion, invariably a number of questions arise. As such, let’s note a few things at the outset: 1) This product can be used if you have zero ($0) income, OR to supplement other income appearing on your mortgage application; 2) In accordance with the terms of the loan, a borrower’s assets are not consumed or depleted. Asset Depletion is a financial figment used for qualifying purposes (i.e., the lender assumes that the borrower could deplete their assets over a period of time to make the payments); 3) You are not required to disclose ALL assets you own, just those you want considered for qualifying purposes; and, 4) Assets are not required to be sold, pledged or encumbered in any way (all of your dollars continue to work 24/7 – without restriction).
With that said, let’s get started. Asset depletion is an underwriting technique in which your lender calculates the value of your assets, and makes adjustments to account for down payment, closing costs, and the inherent volatility of your investment portfolio. To establish your monthly qualifying income, the adjusted value of your assets is then divided by the number of months in the life of the proposed loan.
For example, let’s assume you’re currently unemployed, but you’ve got a total of $3,400,000 in assets allocated among the following types of accounts:
- Checking & Savings – $1,000,000
- CDs (Certificates of Deposit) – $800,000
- Retirement Accounts (401Ks and IRAs) – $800,000
- Investment Accounts (Individual stocks and bonds, Money Market, Mutual Funds) – $800,000
In sum, you’ve got $1,800,000 in cash and CDs, along with $1,600,000 in investments.
Let’s further assume that your goal is to purchase a $1,000,000 home, with a 15 year amortization.
When underwriting an Asset Depletion loan here’s how most of our investors typically proceed:
- Establish the value of the borrower’s assets after the down payment and closing costs are deducted.
- Subtract 30% (sometimes 40%, depending on the age of the borrower and the makeup of the portfolio). This adjustment applies to investments only. It’s to account for inherent volatility of investment portfolios (values can decrease), so we subtract 20% – 40%. In this example we’re using 30%.
- Divide the portfolio’s balance by the number of months in the proposed loan. Here the borrower is seeking a 15 year (180 month) amortization.
- Allocate the resulting income and fund the loan.
Exceptions to the above are sometimes made on a case-by-case basis. - Other conditions apply.
For a clearer picture see Table 1 below:
To find out more about SLG’s Asset Depletion Mortgage, including qualifying factors,
please contact us today. Call 855.SLG.FUND (855.754.3863) or Inquire below.
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