01 Sep Asset Depletion Mortgage Options for Asset-Rich Borrowers

Asset Depletion Mortgage Options for Asset-Rich Borrowers

An asset depletion mortgage can give asset-rich borrowers another way to qualify when traditional monthly income does not tell the whole financial story. Having plenty of money does not always make it easy to qualify for a home loan.

It is a situation we see fairly often with retirees, business owners, investors, and other borrowers who have accumulated significant savings or investments but do not receive a large traditional paycheck.

For these borrowers, an asset depletion mortgage or asset qualifier mortgage may provide another way to qualify.

Consider a retiree receiving about $2,000 per month in Social Security. Based on that income alone, qualifying for a larger mortgage could be difficult. But what if that same borrower has $1 million or more in retirement and investment accounts?

That is a very different financial picture.

Traditional mortgage qualification tends to focus heavily on recurring monthly income. For someone who is asset-rich but income-light, that can create a roadblock even when the borrower has substantial financial resources available.

Fortunately, there are mortgage programs designed to look beyond traditional employment income.

What Is an Asset Depletion Mortgage?

An asset depletion mortgage allows eligible assets to be converted into a calculated monthly income amount that can be used for mortgage qualification.

Instead of looking only at wages, Social Security, pension income, or other monthly income, the lender may also consider funds held in eligible accounts.

Depending on the program, those assets might include:

• Checking and savings accounts
• Certificates of deposit
• Brokerage accounts
• Stocks, bonds, and mutual funds
• IRAs and other retirement accounts
• 401(k) and 403(b) accounts

Not every dollar is necessarily counted at face value. The amount that can be used depends on the type of asset and the specific mortgage program. Funds needed for the down payment, closing costs, and required reserves may also need to be deducted before the final calculation is made.

Start With the Borrower’s Existing Income

Before using asset depletion, it still makes sense to identify all of the borrower’s dependable income.

That may include:

• Social Security
• Pension income
• Annuities
• Retirement distributions
• Required Minimum Distributions
• Other documented recurring income

Sometimes those income sources are enough to qualify on their own.

When they are not, asset-based income qualification may help make up the difference.

How the Calculation Works?

With an asset depletion loan, eligible assets are generally converted into a monthly qualifying income figure.

The lender determines the amount of eligible assets available and divides that amount according to the calculation required by the particular loan program.

Different mortgage programs can use very different calculations.

That distinction is important. A calculation that produces too little qualifying income under one program may produce a very different result under another asset-based mortgage program.

That is one reason these loans should be evaluated based on the borrower’s complete financial picture rather than assuming that one asset depletion calculation fits every borrower.

What Is an Asset Qualifier Mortgage?

An asset qualifier mortgage takes a somewhat different approach.

Rather than converting assets into monthly income and then relying on a traditional debt-to-income calculation, certain programs allow a borrower to qualify primarily based on the amount of eligible liquid assets available.

This can be particularly useful for borrowers who have substantial wealth but little traditional documented income.

One example available through Accurate Mortgage Group is the ATR-in-Full program, which is designed for borrowers who are cash-heavy but income-light. The program allows borrowers to qualify using sufficient liquid assets rather than relying on employment income.

ATR-in-Full Mortgage Program

The ATR-in-Full asset qualifier program can be an option for borrowers whose financial strength is reflected more clearly in their assets than in their monthly income.

Some of the program features currently include:

• Up to 80% financing on a purchase
• Up to 75% financing on a refinance
• Minimum 600 FICO
• Loan amounts up to $4 million
• Employment not required
• No traditional income documentation
• Two months of statements for the qualifying account
• Liquid assets can be used to qualify
• Owner-Occupied and Second Homes allowed 
• Reserves are not required at 75% LTV or below

For the right borrower, an asset qualifier mortgage can provide a much different path to approval than trying to fit significant assets into a traditional W-2 or tax-return-based mortgage calculation.

Asset Depletion vs. Asset Qualifier Mortgage

Although the terms are sometimes used interchangeably, asset depletion and asset qualification are not exactly the same thing.

With asset depletion, eligible assets are converted into a monthly income amount. That calculated income can then be combined with the borrower’s other qualifying income.

With an asset qualifier program, the borrower’s liquid assets can become the primary basis for qualifying. Depending on the program, employment or traditional income documentation may not be required.

That difference can be significant.

A borrower who does not generate enough qualifying income through a traditional asset depletion calculation may still qualify under an asset qualifier program.

Who Is a Good Fit?

An asset-based mortgage may be worth exploring for borrowers such as:

• Retirees with substantial IRA or investment balances
• Borrowers living primarily on Social Security or pension income
• Investors with significant brokerage assets
• Business owners whose tax returns do not reflect their full financial strength
• High-net-worth borrowers with limited recurring income
• Borrowers who recently retired or stopped working
• People with substantial liquid savings but little or no employment income

Having limited monthly income does not automatically mean someone is a weak borrower. In some cases, income simply does not tell the whole story.

Options for Retired Borrowers?

Yes. Depending on the borrower’s circumstances and the loan program, retirement and investment assets may help a retiree qualify for a mortgage.

For some retirees, Social Security, pensions, annuities, and retirement distributions provide enough qualifying income.

For others, an asset depletion mortgage for retirees may supplement that income. Borrowers with particularly large liquid asset balances may also be candidates for an asset qualifier mortgage.

The right approach depends on the amount and type of assets available, the loan amount, property type, credit profile, and other qualification requirements.

Asset-Based Mortgage vs. Reverse Mortgage

For borrowers age 62 and older, a reverse mortgage may also be an option. But it should not automatically be assumed to be the best solution simply because the borrower is retired.

A reverse mortgage works very differently from an asset depletion or asset qualifier mortgage.

With a reverse mortgage, the borrower accesses home equity and generally does not make a monthly principal and interest payment. The loan balance can increase over time, and the homeowner remains responsible for property taxes, homeowners insurance, and maintaining the property.

With an asset-based traditional mortgage, the borrower typically continues making monthly mortgage payments but may be able to qualify using assets rather than depending entirely on employment income.

Neither option is automatically better. The appropriate choice depends on the borrower’s assets, equity, cash flow, age, long-term plans, and financial goals.

Looking at the Whole Financial Picture

When a borrower has significant assets but limited monthly income, the first question should not simply be whether their W-2 income is high enough.

A better question is whether there is another legitimate way to document their ability to repay the loan.

That could involve combining Social Security, pensions, annuities, or retirement distributions with an asset depletion calculation.

For another borrower, an asset qualifier mortgage may make more sense.

And depending on the circumstances, a HELOC, cash-out refinance, or reverse mortgage may also be worth comparing.

The key is looking at the entire financial picture before deciding that a borrower does not qualify.

Talk With Accurate Mortgage Group About Asset-Based Mortgage Options

A modest monthly income does not necessarily mean someone is a poor mortgage candidate.

A retiree with substantial retirement savings, an investor with a large brokerage account, or another borrower with significant liquid assets may have mortgage options that are not obvious when looking only at traditional income.

At Accurate Mortgage Group, we work with borrowers and referral partners to evaluate asset depletion mortgages, asset qualifier mortgages, Non-QM loans, and other mortgage solutions based on the borrower’s actual financial situation.

If you or your client is asset-rich but income-light, contact Accurate Mortgage Group at (615) 833-0456. We can review the income, assets, property, credit profile, and loan request to determine which mortgage options may be worth pursuing.