ASSET DEPLETION
CASH-OUT REFINANCE
Essential Elements

Asset-Based Income Calculation
Rather than using a borrower’s income to qualify, lenders calculate a hypothetical monthly income based on the borrower’s liquid and semi-liquid assets. The lender “depletes” the assets over a set term (commonly 30 years or 360 months) to determine a qualifying monthly income.

– Eligible assets typically include cash in checking/savings accounts, stocks, bonds, and sometimes retirement accounts, though retirement assets may be discounted by a certain percentage.

Eligible Asset Types and Liquidity Requirements
– Lenders primarily look at liquid assets like cash, stocks, and bonds.

– Certain retirement accounts and other semi-liquid assets may also be considered, though often at a discounted value.

– Underwriters may apply a discount rate to certain types of assets (e.g., reducing the qualifying amount of retirement accounts by 30-40%) due to potential tax implications or withdrawal penalties.

Loan-to-Value (LTV) Ratio
The maximum loan-to-value (LTV) ratio often varies by lender and can be lower than traditional cash-out refinance loans, usually around 70-80%. This ratio reflects the maximum amount a borrower can access based on the home’s appraised value.

Credit and Debt
Although qualification focuses on assets rather than income, lenders typically still require a strong credit score of 680 or higher, to reduce risk.

– Debt-to-Income (DTI) guidelines may be more flexible since qualification is based on assets, but lenders still evaluate overall financial health, looking for manageable existing debt.

Cash-Out Refinance
– Similar to a traditional cash-out refinance, borrowers can access home equity in cash. The amount depends on the home’s value, equity, and the lender’s LTV guidelines.

– Borrowers can use the cash for any purpose, such as paying off debt, making investments, or funding major expenses.

Interest Rates and Loan Terms 
Asset Depletion Cash-Out Refinance loans may have higher interest rates than traditional refinance loans, as lenders consider them riskier due to the unconventional qualification method.

– Terms are usually similar to conventional mortgage products, often available in fixed-rate or adjustable-rate formats, with common terms being 15 or 30 years.

Asset Documentation and Accessibility
– Borrowers need to provide detailed documentation of all qualifying assets, including bank statements, investment portfolios, and other supporting documents.

– Underwriters will require verification that assets can be easily accessed or liquidated, especially for semi-liquid assets.

An Asset Depletion Cash-Out Refinance loan provides unique flexibility for high-net-worth individuals with substantial assets but limited cash flow. These elements make the Asset Depletion Cash-Out Refinance loan a unique product for qualifying individuals seeking to leverage home equity. It balances the asset-based qualification method with traditional refinance structures, allowing borrowers with limited income but substantial assets to qualify and access cash based on their home’s value.