ASSET DEPLETION
Credit Requirements

An Asset Depletion Purchase Loan is a unique mortgage option primarily used by borrowers who may have substantial assets but lack a steady income stream or traditional employment documentation. This loan product is particularly attractive to high-net-worth individuals, retirees, or self-employed borrowers who can demonstrate their ability to repay the loan using their liquid and non-liquid assets instead of relying solely on income. However, as with any mortgage product, there are specific credit requirements and guidelines that lenders follow when offering an Asset Depletion Purchase Loan.

Key Credit Requirements for an Asset Depletion Purchase Loan

Minimum Credit Score
Most lenders offering asset depletion loans will expect a borrower to have a good to excellent credit score, usually a minimum credit score of 680 or higher. Some lenders may require a higher score (typically 700 or above), depending on the amount of the loan, the value of the assets, and other risk factors. A higher credit score signals a borrower’s financial responsibility and ability to manage credit, even if they do not have a steady income stream.

Assets Required for Loan Qualification
For an Asset Depletion Loan, the borrower’s ability to repay the loan is based on their assets rather than their income. To qualify, lenders generally look at:
– Liquid assets, such as savings accounts, checking accounts, money market funds, and certificates of deposit (CDs).
– Investment accounts, including stocks, bonds, mutual funds, and retirement accounts like IRAs and 401(k)s (though retirement assets may be discounted in the calculation).
– Non-liquid assets, like real estate or other investments, may be considered but are typically less favored.

The total value of these assets is often divided by a set term (usually 360 months, the standard term for a 30-year mortgage) to determine an equivalent monthly income for loan qualification. Some lenders may use a shorter term or adjust the calculation based on factors like the borrower’s age or the type of assets.

Debt-to-Income (DTI) Ratio
Although income is calculated differently in an asset depletion loan, lenders still use a Debt-to-Income (DTI) ratio to evaluate the borrower’s overall financial health. A typical DTI requirement for an asset depletion loan is around 43% or lower. This means that a borrower’s total monthly debt obligations (including the mortgage payment) should not exceed 43% of their monthly income (as calculated by the asset depletion formula). A lower DTI ratio is usually preferred to reduce the lender’s risk.

Asset Seasoning
Most lenders require that the assets used to qualify for an asset depletion loan must be seasoned, meaning they have been in the borrower’s possession for a certain period, usually at least 60 to 90 days. This prevents borrowers from acquiring large sums of money or assets right before applying for the loan and ensures the assets reflect long-term financial stability.

Other Considerations
Some lenders may have additional requirements, such as the need for residual income (income after all debts are paid), particularly for larger loan amounts or luxury properties. Additionally, borrowers may need to demonstrate that they have sufficient reserves to cover several months of mortgage payments beyond the down payment and closing costs.

An Asset Depletion Purchase Loan provides a viable mortgage option for individuals with significant assets but insufficient or non-traditional income sources. To qualify, borrowers need a strong credit profile, substantial assets, and a willingness to meet stringent documentation and asset calculation requirements. While the loan’s flexibility appeals to high-net-worth individuals, understanding the specific credit and asset requirements is essential for a smooth application process.