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How an Asset Depletion Mortgage Works

How an Asset Depletion Mortgage Works

  • Program Overview
  • Asset depletion mortgages, also known as asset dissipation mortgages, enable borrowers to use liquid assets to qualify for a mortgage.  Asset depletion mortgages are good for borrowers with relatively minimal income or no verifiable employment but significant assets such as funds in a bank, investment or retirement account.  Examples of potentially applicable borrowers include the self-employed, retired (or almost retired) and wealthy.

    The specific mechanics of an asset depletion mortgage vary by lender and program but they generally work the same way.  Lenders use a formula to calculate the income that could be generated by depleting a borrower’s liquid assets over a fixed period of time and use that income to determine a borrower’s ability to qualify for a mortgage.  The term “asset depletion” is used because the lender assumes that the borrower could sell, or liquidate, his or her assets over time to pay for the mortgage.

    The income derived from the asset depletion formula is added to other income the borrower may earn such as employment wages or social security to calculate the debt-to-income ratio the lender applies to determine what size mortgage the borrower can afford.  A borrower may have significant assets but if the lender’s asset depletion formula does not yield sufficient income the borrower may not qualify for the desired loan amount.  Borrower debt-to-income ratios for asset depletion mortgage vary but generally range between 40% and 50%.  Please note that if a borrower generates significant income from his or her assets, such as from dividends, then that income may be subtracted from the asset depletion income so there is no double-counting.  In this scenario, the dividend income is still used to help the borrower qualify but it is not considered part of the asset depletion equation.

  • Great Mortgage IdeaIt is important to highlight that with an asset depletion mortgage the borrower is not actually required to sell any assets over the course of the loan.  Additionally, the borrower is not actually pledging any assets as collateral for the mortgage so they are not tied up or restricted after the mortgage closes
  • What Lenders Offer Asset Depletion Mortgages?
  • The best lenders for asset depletion loans include banks with both mortgage lending and private banking operations that are looking to grow their assets under management such as First Republic or Boston Private.  These banks may offer more significant mortgage rate discounts if you move some or all of your assets to them.  Other asset depletion mortgage lenders include larger, national banks such as Wells Fargo, Citibank, Bank of America and Chase as well as portfolio lenders, which are banks that hold mortgages on their balance sheets instead of selling them. 

    We recommend that you contact multiple lenders in the table below to determine if they offer asset depletion mortgages and to request program requirements and loan terms including your maximum loan amount, interest rate and closing costs.  Loan guidelines and pricing vary by lender so it is important to compare multiple proposals to find the asset depletion mortgage that best meets your needs.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of November 21, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • What Types of Assets are Eligible?
  • Asset eligibility varies by lender but in general most liquid assets are eligible. Examples include:

    • Checking / savings accounts
    • Investment account with stocks, bonds, mutual funds, ETFs
    • Money market account
    • Certificate of deposit (CD)
    • Retirement accounts such as 401(k), IRA, SEP, KEOGH may be considered depending on the borrower’s age and any penalty applied for accessing funds in the account.  Some lenders may give a borrower partial or no credit for assets in retirement accounts if the borrower is not of, or near, retirement age
  • Great Mortgage IdeaBe sure to confirm a lender’s account eligibility policy and the value of your eligible assets according to that policy before selecting a lender
  • How Does the Asset Depletion Income Formula Work?
  • There are two basic approaches to determine asset depletion income as outlined below.  Review the examples below and be sure to confirm the approach a lender uses to calculate asset depletion income before moving forward with your application.

  • Approach 1: 
    Borrower eligible net assets divided by 360
    • Approach 1 Example
    • Borrower eligible net assets after down payment and closing costs: $1,000,000
    • Monthly income from asset depletion: $1,000,000 (eligible net assets) / 360 months = $2,778 in monthly income
    • Some lenders may use a variation of this formula and apply a 20% - 30% discount to eligible net assets
  • Approach 2:
    Eligible net assets plus an investment return divided by 85 minus the borrower’s age
    • Approach 2 Example:
    • Borrower eligible net assets after down payment and closing costs: $1,000,000
    • Return on investment applied to assets: 5.0%
    • Borrower age: 65
    • Monthly income from asset depletion: $1,000,000 (eligible net assets) @ 5.0% (rate of return) / 240 (85 - 65 (borrower's age) = 20 years * 12 months per year) = $6,600 in monthly income
    • Please note that calculating the additional monthly income from the assets is similar to calculating the monthly payment for a mortgage.  For example, for $1,000,000 million in assets at a 5% rate of return over twenty years, the monthly income is $6,600.  $6,600 is also the monthly mortgage payment on a $1,000,000 mortgage with a 5% interest rate and 20 year term
    • This approach is beneficial to the borrower because it applies an investment return to the borrower's assets
    • Lenders, however, may use different rates for return on investment which can significantly impact a borrower's asset depletion income
    • This approach is also favorable to older borrowers while being disadvantageous to younger borrowers because it divides the income by a greater number of months
  • Asset Depletion Mortgage Qualification Requirements
  • Typically only owner-occupied loans for primary or secondary / vacation residences are eligible for the program. Some lenders offer asset depletion mortgages for investment properties but they are relatively uncommon. Some lenders may also require a lower loan-to-value (LTV) ratio of 70% as compared to the 80% - 90% maximum LTV ratio for many traditional mortgage programs. Borrowers must typically have a minimum credit score of 620 - 680 to qualify for an asset depletion mortgage. To demonstrate proof of assets, borrowers are required to provide current and historical monthly account statements in addition to standard personal financial documents such as tax returns and pay stubs, if applicable.

  • Am I Required to Move My Assets to the Lender I Use?
  • Most lenders do not require borrowers to move their assets to the lender in order to qualify for an asset depletion mortgage but in many cases borrowers may be able to obtain a lower interest rate by shifting some or all of their assets.  Interest rate discounts vary by lender but the size of the discount usually depends on the amount of money the borrower moves to the lender.

    Use the FREEandCLEAR Lender Directory to find top-rated lenders that offer asset depletion mortgages.


  • Great Mortgage IdeaRelated FREEandCLEAR Resources

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry


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