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How Asset Depletion Mortgage Can Help You Buy a Home

Written by Banks Editorial Team

Updated December 18, 2023​

4 min. read​

Qualifying for a traditional mortgage can be challenging, especially if your finances and credit scores are not in good shape. Fortunately, there are non-QM home loans like an asset depletion mortgage that you can qualify for without having to verify your income.

Keep reading to learn more about an asset depletion mortgage and how it can help you buy your dream home.

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What is an Asset Depletion Mortgage?

An asset depletion mortgage or an asset dissipation mortgage is a loan that allows you to use your liquid assets instead employment income to qualify for a mortgage. The assets serve as collateral, and the lender can seize them to recoup the losses if you default.

Asset depletion loans are typically available at higher interest rates than other types of loans, making them an attractive option for borrowers looking to save money on their monthly mortgage payments. 

Asset depletion mortgage loans aren’t ideal for everyone, but they are a good option for those who otherwise can’t qualify for traditional mortgages but have substantial amounts of assets. They are also suitable for:

Traditional Mortgage vs. Asset Depletion Mortgage

A traditional mortgage is a home loan that’s not offered or backed by a government agency. Since the federal government doesn’t insure conventional loans, they often have stricter requirements

To qualify for a traditional mortgage, you must have a good credit score and a down payment of at least 20%. You’ll also need proof of income, employment history, and a low debt-to-income (DTI) ratio.

On the other hand, asset depletion mortgages take into account the amount of assets rather than your employment income. With an asset depletion loan, the lender uses qualifying assets, such as investments, savings, and retirement accounts, to evaluate your eligibility. 

Unlike asset depletion mortgages, traditional mortgages have flexible requirements. For one, some conventional mortgages allow you to deplete high percentages of qualifying assets 一 for example, 90% instead of 70%. Besides, you can divide the assets by fewer months when calculating qualifying income (say 60 months instead of 240 or 360 months).

How an Asset Depletion Mortgage Works

An asset depletion program uses your liquid assets as collateral instead of your employment income. This means you deplete your assets to serve as income over the life of the loan. To qualify for the program, you must meet several requirements.

Eligibility

You must meet specific lender requirements to be eligible for an asset depletion mortgage. The eligibility requirements vary by lender but generally include the following:

  • Sizeable amounts of assets
  • Retired (almost retired) and living off your savings
  • Have difficulty verifying your income
  • Self-employed and have less income

Requirements 

Lenders not only look at your assets when evaluating your eligibility for an asset depletion loan. Since these loan programs aren’t regulated by any government agency, lenders have the right to set their own requirements. 

The mortgage lending requirements vary by lender but typically include the following:

  • Substantial amounts of assets: One key factor lenders look at when determining your eligibility for an asset depletion mortgage is assets. You need significant amounts of assets, which can include savings accounts, investments, and retirement accounts.
  • High credit score, usually 680-700 or higher: While asset depletion loans are based on the borrower’s assets instead of their income, lenders still look at credit scores. The higher your credit score, the higher your approval odds. 
  • Higher down payment: Depending on the lender, you may need to put down anywhere between 25% to 30% of the home’s purchase price. 
  • DTI ratio below 50%: Like traditional mortgages, lenders will consider your DTI ratio when deciding whether or not to approve your home loan. A lower DTI ratio will improve your chances of getting approved.
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Qualified Assets

You can only use certain types of liquid assets to qualify for an asset depletion mortgage. These assets include:

  • Checking or savings accounts
  • Certificate of deposits (CDs)
  • Money market accounts
  • Investment accounts, including stocks, bonds, and mutual funds
  • Retirement accounts, such as 401(k) or IRA

In most cases, mortgage lenders won’t count the whole amount of your eligible assets toward a mortgage. For example, liquid assets like your savings accounts may count as 100%, but lenders can use up to 70% of your investment assets to count as your income. However, for retirement accounts, only 50-70% of the funds qualify, depending on the borrower’s age.

The exact calculations vary based on the lender. As such, you need to compare mortgage lenders when shopping for asset depletion loans.

How Income is Calculated

With an asset depletion mortgage, lenders calculate your monthly income by dividing your total qualifying assets by 360 months. The number of months used in the calculation is based on the borrower’s age. 

For example, let’s say you’re self-employed and have $2.5 million in eligible assets. The lender divides $2.5 million by 360 to get your monthly income of $6,944. It then computes your maximum loan amount based on your income.

It’s important to note that the income calculated in an asset depletion mortgage isn’t based on the borrower’s actual income but rather an estimate of their income from their qualifying assets. This means the loan amount you’ll qualify for may differ from what you’d be eligible for with a traditional mortgage based on your actual income.

How Can an Asset Depletion Mortgage Help You Buy a Home?

An asset depletion mortgage can be an excellent option for many homebuyers looking to buy a home but do not have the necessary funds to cover the purchase. 

The mortgage loan allows you to use your liquid assets, such as savings accounts, retirement accounts, stocks, bonds, mutual funds, and other investments, as collateral for a mortgage. The lender then provides you with a home loan based on the total value of your assets. Therefore, the higher the value of your assets, the larger your mortgage loan will be.

Since asset depletion mortgages consider the borrower’s assets, lenders may be more lenient with income requirements. As a result, borrowers may qualify for a larger home loan with lower monthly payments and better interest rates than traditional loans.

In addition to using assets to qualify for the loan, borrowers can also use their assets to cover closing costs. This can be particularly beneficial for those who may not have a lot of cash on hand. 

Is an Asset Depletion Mortgage Right for You?

Whether or not an asset depletion mortgage is right for you depends on your current situation. For example, an asset depletion loan may be a perfect option if you have a considerable amount of liquid assets held in the U.S. 

Mortgage lenders put much more weight on the amount of assets you own than your income when deciding on your mortgage approval. The amount of assets you need varies by lender.

You may also be eligible for this loan program if you’re self-employed and your tax returns show less income. 

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