Using Asset Depletion As Income
Asset depletion is a method for calculating monthly income by dividing a borrower’s total assets by a set number of months. The borrower is not required to cash in their assets as they're only used to demonstrate an ability to make the mortgage and housing payments.
Borrowers who use an asset depletion program to qualify 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 360 payments. Assets are generally qualified with 100% of cash accounts and 70% of retirement and investment accounts (100% of retirement funds may be used if the borrower is over 59 ½ years old).
Lets look at how this plays out in a few different examples…
Example 1:
- $800,000 in Assets
- 61 years-old borrower
- Application for a 15-Year Mortgage
- Asset Depletion Income: $3,111.11
In this example, the borrower’s total assets are equal to $800,000. Because the borrower is 61 years old, their assets will only be reduced by 30%. This brings the $800,000 down to $560,000, which is then divided by 180, as there are 180 monthly payments in a 15-year mortgage. This leaves us with a final number of $3,111.11. This final number can then be used as part of the borrower’s mortgage application.
Example 2:
- $1,000,000 in Assets
- 45 years-old borrower
- Application for a 30-Year Mortgage
- Asset Depletion Income: $1,666.67
For this next example, we are looking at a 45-year old borrower who has $1 million in total assets. Because the individual is younger than 59.5 years of age, their assets will be reduced by 40% instead of 30%. This leaves us with $600,000, which is then divided by 360 because it’s a 30-year mortgage (360 payments). The final number, in this case, is $1,666.67
Example 3:
- $2,000,000 in Assets
- 70 years-old borrower
- Application for a 15-Year Mortgage
- Asset Depletion Income: $7,777.78
In this case, the borrower has $2 million in assets, which is reduced by 30%, leaving a total of $1.4 million. This can then be divided by only 180 (15-year mortgage = 180 payments) giving us a final number of $7,777.78.
These are just a few examples, but they demonstrate how your assets can be used, and it may give you an idea of just how much could be added to your application if you use asset depletion.