As most borrowers know, stated income loans were largely eradicated from lenders' offerings back in 2008. Since then, a few investors have offered "asset depletion" programs that derive a supporting monthly income figure by dividing a set schedule of monthly payments against a borrower's assets. The borrower is not required to cash in their assets as they're only used to demonstrate an ability to service the proposed mortgage and housing payments. Moreover, the borrower isn't required to show an employment history or to verify any source of income. In general, these asset depletion programs have been offered as adjustable rate mortgages (ARMs) with shorter, fixed rate terms.
Interestingly, Fannie Mae offers an asset depletion program with 30-year fixed terms. This program works with both true conforming loan sizes to $417,000 and on high balance conforming loans up to $625,500. Pricing is competitive and the program falls within standard guidelines. Unfortunately, this asset depletion program is hard to come by as most lenders' overlays (internal restrictions) do not allow for it. But the program remains a superb option for asset rich/income poor borrowers interested in 30-year fixed money and some investor channels offer loans to as high as $2 million.
Again, borrowers availing themselves of this asset depletion program do not need to show any source of income or employment. They can instead rely on asset depletion calculations based on a combination of cash, retirement, and investment monies divided by the 360 payments that make up a 30-year fixed loan. Assets will qualify with 100% of cash accounts and 70% of retirement and investment accounts. For example, if a borrower has $2,000,000 in liquid assets, and another $1,000,000 in retirement and investment funds, then their qualifying monthly income would be $7500 ($2,000,000 + $700,000 = $2,700,000; divided by 360 = $7500). For a borrower with limited liabilities, income in this range would likely support a purchase price of around $600,000 with a 30 percent down payment.
Here are some of the investor-specific requirements for the 30-year fixed, asset depletion program:
- For purchase or rate and term (no "cash out") refinances.
- Maximum loan-to-value ratio is 70% (30% down payment or existing equity).
- Asset depletion income cannot be added to other income sources such as W2 or self-employed earnings.
- Assets used for income stream must be individually owned or else the co-owner must be a co-borrower for the subject property.
- Assets must be liquid and available without penalty. (10% early withdrawal penalty would disqualify funds.)
- Ineligible assets include stock options and non-vested restricted stock.
- Minimum FICO credit score of 620.
- Primary residences or second homes, only, 1-4 units.
Again, wealthy individuals who are unable to provide a qualifying employment history or sufficient income may find this an ideal solution -especially if they are looking for 30-year fixed money as high as $2 million. Those with less substantial funds who need a "stated income" asset depletion program will find greater purchase power with one of the shorter term adjustable rate mortgages. Either way, there are good options for those who would otherwise not be eligible for mortgage financing.