An “asset depletion mortgage loan” is a type of loan that utilizes the borrower’s assets, typically liquid assets like investments, retirement accounts, or bank accounts, to determine the borrower’s qualifying income for a mortgage. Instead of relying solely on traditional income or employment history to determine loan eligibility, the lender considers the borrower’s overall asset portfolio and calculates an “income” based on the depletion of those assets over time. This calculated income then serves as a means to determine the borrower’s ability to repay the mortgage.

• With an Asset Depletion loan, the lender calculates the borrower’s monthly income by dividing their total assets by a specified number of months. This calculated amount is then added to any regular income the borrower may have.

• Asset depletion loans can be beneficial for individuals with substantial assets but limited verifiable income stream or unconventional income sources. This allows borrowers who may not qualify for a traditional mortgage based on income alone to access financing.

• By considering the borrower’s assets, including investments and savings, lenders may be willing to offer larger loan amounts compared to traditional income-based mortgages. This can be advantageous for borrowers who require a higher loan to purchase a property.

• Asset depletion loans offer flexibility in income calculations, as they take into account the value of the borrower’s assets and can use a depletion rate to determine an annual income stream.

• The lender will typically require a down payment of at least 20% of the home’s purchase price, and the borrower’s assets will be evaluated to determine their ability to make the monthly mortgage payments. The lender may also require the borrower to have a certain amount of reserves to ensure that they can continue to make payments if their assets were to decrease in value or if their income changes.

• Since the loan relies on assets rather than income, asset depletion mortgages may have reduced documentation requirements. This can streamline the loan application process and make it more accessible for borrowers with complex financial situations.

• Lenders that offer asset depletion loans tend to have more flexible underwriting criteria. They consider the borrower’s total asset portfolio, including stocks, bonds, retirement accounts, and other liquid assets, as part of the loan qualification process.

• Since the loan eligibility is based on the depletion of assets, borrowers may be able to qualify for higher loan amounts compared to traditional mortgages based solely on income.

• Asset depletion loans typically come with competitive interest rates, similar to traditional mortgages. This is because the lender considers the borrower’s asset portfolio, which provides additional security for the loan.

By using assets as income, borrowers can illustrate that they have the financial means to make mortgage payments, even if their income fluctuates.  As always, it’s crucial to consult with a qualified mortgage professional or financial advisor to understand the specific terms, advantages, and disadvantages of an asset depletion mortgage loan, as they can vary among lenders and depend on individual circumstances.