How an Asset Depletion Mortgage Helps California Homebuyers Qualify for More

An Asset Depletion loan will allow wealthy California homebuyers to qualify for loan amounts that they would otherwise not qualify for based on traditional underwriting standards. While traditional underwriting standards will only look at income shown on the most recent two years tax returns, there are now programs, like Asset Depletion qualifying, that will give a “boost” to the income for qualifying purposes.

How does Asset Depletion Qualifying Work?

A not so uncommon scenario during the past few years has been the wealthy California homebuyer, with several million dollars in reserves, unable to qualify for a $1,000,000 loan. Even though he could pay the loan off several times over, the lender will only look at historical income. But Asset Depletion takes into account the assets held as reserves. An income is derived from the assets based on a set formula.

The eligible assets are amortized over a term not greater than 30 year and not less than 10 years. It all depends on the borrowers age compared to a base age of 85. For California homebuyers 55 years or younger, their assets are amortized over 30 years (85-55 = 30), based on a 5% return.  Assuming $2,000,000 in “liquidable”, this results in additional income of $10,736 monthly, which can be added to the already proven tax return income.  A 70 year old homebuyer’s assets would be amortized over 15 years (85-70 = 15 years), also at the 5% return. Assuming the same $2,000,000 in “liquidable” assets, $15,815 would be added to their income.

What Assets are Used for Qualifying?

• Cash equivalents, including CD’s and funds in checking and savings accounts.
• Trust Accounts
• Investment portfolio’s
• IRA’s and 401k’s, but ONLY if the borrower is 62 years of age or older.

Asset Depletion can be Combined with Other Niche Loan Programs

The same Portfolio lenders offering programs like Asset Depletion, also offer other types of niche mortgage loan programs for Califonia home buyers, such as Pledged Asset loans and loans for Foreign Nationals. These programs can be combined, and can be used not only for a Primary home, but also Second/Vacation homes and investment properties. For example, a wealthy homebuyer could purchase a $5,000,000 home with only 10% down by pledging assets towards the down paymen requirement and then deriving income from the pledged assets. Pledged Asset loans allow for low down payments when the buyer does not wish to liquidate their assets.

As more niche Portolio loan programs make a comeback, it will be important for California borrowers to stay on top of these programs. Finding a California Jumbo loan officer is important in helping determine eligiblity for one of these programs.