Purchasing a home is one of the most monumental and exciting moments of a person’s life. From searching for your ideal neighborhood to deciding what features are at the top of your “must-have” list, there’s much to consider when embarking on your home-search journey. Before you even begin digging into the fun part of your research, you’ve likely already evaluated your finances.
For some potential homebuyers, securing a traditional loan is a simple process. However, for many people who want to pursue the goal of homeownership, but perhaps don’t have the most conventional qualifiers for a loan, there are certainly still options available. With Movement Mortgage, their Asset Depletion option allows applicants to not just use the traditional forms of income to qualify for a loan, but also opens up the option to those with other sources of income, like self-employed workers, gig workers, those on a 1099, etc. “Asset depletion” is a way to qualify for a loan using substantial assets rather than income from employment.
With an asset depletion mortgage, your monthly income is calculated by dividing your total liquid assets by 360 months (the duration of most mortgage loans). In this way, you can prove you have enough money to cover the loan even without regular income from employment. Using funds from asset depletion does not mean you have to qualify solely based on your assets. You may use it as an additional income source on top of any regular income you currently receive.
That said, borrowers who use an asset depletion program to qualify do not need to show any other sources of income or employment. If their assets are sufficient to pay for the loan — as well as regular living expenses — they can qualify based solely on that calculation.
How Asset Depletion Mortgages Work:
- Asset depletion loans use your assets as collateral instead of your income
- This program allows you to deplete your assets to count that money as income for the duration of the loan
Eligible Assets for Mortgage Qualifying:
- Only certain types of assets can be used for mortgage qualifying. These typically include:
- Savings account
- Checking account
- Money market account
- CDs (Certificate of Deposit)
- Stocks, bonds, mutual funds, and other investments
- Retirement accounts (401(k), IRA, etc.)
- Equity in other real estate holdings, if any
- Business ownership, if any
- Any other assets that can be verified and easily liquidated
- Not all retirement accounts will qualify, depending on the mortgage borrower’s age and potential penalties applied for accessing funds in the account. Mortgage lenders may only allow a partial credit, or no credit at all, for assets in retirement accounts if the mortgage borrower isn’t yet at or near retirement age.
How Much of Your Assets Are Counted?
- Even for allowable assets, lenders won’t necessarily count the whole amount toward your mortgage “income”
- For liquid assets — such as savings, checking, or money market accounts — mortgage lenders typically count 100 percent of the funds
- Stocks, bonds, mutual funds, and other investments: Generally, about 70 to 80% of the current market value
- For retirement accounts: Generally, only 70 to 80 percent of funds may be counted, depending on the borrower’s age
- Equity in other real estate holdings: Generally, a percentage of the equity value, depending on the lender’s criteria
- Business ownership: Typically, a percentage of the business’s value, depending on the lender’s assessment
For more information, reach out to trusted Movement Mortgage lenders Jolene Messmer, Carese Busby, or Rick King.
