Asset Depletion Financing
Min. Fico: 680
Max LTV: 70%
Max Loan Amount: $5 million
This mortgage program can prove invaluable when working with high end borrowers and investors who have liquid assets (stocks, bonds, mutual funds, IRAs, cash reserves).
Often, the borrower is self-employed and their tax returns do not indicate enough income to qualify. (Note: ACM only needs one year tax return for self employed borrowers to qualify).
Or maybe the borrower is retired with a pension, living on social security and has no (or marginal) employment.
In either of these situations the borrower can still qualify.
"Asset Depletion" is an underwriter’s tool to use a borrower’s "liquid" assets to provide more income to qualify 1003 by calculating a return on the borrower’s liquid assets.
Although this makes perfect sense, it is unconventional for an underwriter to approve a borrower using assets as income.
However, our underwriters understand the logic in approving a borrower who has demonstrated their ability to save and accumulate assets.
EXAMPLE: 73-YEAR OLD BORROWER:
Ø Income: Borrower’s income is $5,000/month but DTI is too high to qualify.
Ø Assets: Borrower is 73 years old with $1,000,000 in liquid assets, including a stocks and a retirement account.
Ø Calculation: $1,000,000 at 5% over a 12-year amortization:
The underwriter uses Asset Depletion to help with the DTI by running a mortgage calculation at 5% over a 12 year amortization on the borrower’s $1,000,000 assets. Why a 12-year amortization? Because the borrower’s age (73) allows for a 12 amortization based on the borrowers life expectancy of 85 years.
Ø Calculation Grid: (click here) – My Asset Depletion Calculation GRID gives you a close estimate of what income you may use on the 1003 based on the borrower’s age.
Ø Result: $9,249/month additional income for qualifying purposes…goes on the 1003 under “Other Income”. This amount is added to his existing $5,000 income so now he has $14,249/month for qualifying purposes.
ü The target DTI…is always 40% with flexibility for the right scenarios (i.e., low LTV or higher assets).
ü Eligible Assets…must be cash or cash equivalent, trust funds, investment portfolios (stocks, bonds, mutual funds), fully vested stock options and retirement accounts only if the borrower is of retirement age.
Ineligible Assets include equity in REO, private stock, annuities, and retirement accounts if the borrower is not of retirement age (64 years old).
Asset Depletion may not be used for Foreign Nationals.
ü Income Sources…the borrower may use any existing income plus income from Asset Depletion. However, if your borrower qualifies with the income from asset depletion alone, then that will be sufficient and no other income will be required.
However, your borrowers must always supply tax returns.
ü Pledged Assets…Asset Depletion can be used together with Pledged Assets.
Cell: 949 250-3981
Copy written April 2004…Daniel Dobbs, Broker