The asset depletion or asset utilization program are great solutions for high-net-worth borrowers, particularly those who have hard to document income or seniors on fixed income. While most loan programs evaluate the borrower’s income through tax documents or bank deposits, these programs determine income based on the liquid assets available to the borrower as well as traditional forms of income. In this article we will explore the income calculation and other eligibility guidelines for these programs.
Asset Depletion
When using the asset depletion program a borrower’s monthly income is determined by totaling their liquid assets and dividing them by some term, typically 60 or 84 months. Lenders do not treat all liquid assets the same though. Bank accounts, stocks and bonds are counted in their entirety, but lenders tend to count around 70% of retirement funds. For example, If you have $500,000 combined between your checking and investment accounts along with $1 million in retirement funds, then your total assets will be calculated at $1.2 million rather than $1.5 million. Divided over 60 months this results in a monthly income of $20,000.
Borrowers who have another form of income such as traditional employment income, a pension or Social Security benefits can use them in addition to their assets to maximize their buying power.
Asset Utilization
Rather than computing a monthly income amount the asset utilization program compares the borrower’s total assets to the loan amount. A common standard is that total qualifying assets must be greater than or equal to 125% of the loan amount. For example, the minimum assets needed to take out a loan of $400k is $500k. Like with the asset depletion program, different types of assets are treated differently so checking, savings and investment accounts will count fully but around 70% of retirement funds will be counted to the total.
How to Qualify
- Credit Score: minimum scores vary between 620 and 660
- Minimum down payment: 15-30% depending on credit score
- Refinance Maximum Loan Amount: 70-80% of property’s value for rate-and-term loans. 65-75% of property’s value for cash-out loans.
- Maximum Debt-to-income ratio: 50-55%
- Must be a primary or second home
Benefits of using Asset Depletion/Utilization
- Helps maximize buying power for borrowers with large savings
- Expands credit access for self-employed borrowers with hard to document income
- Asset depletion can be combined with traditional income to maximize borrowing power