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Unlocking Homeownership: A Deep Dive into Asset Depletion Loans
What is an Asset Depletion Loan?
Also known as an asset-based home loan or asset dissipation loan, an Asset Depletion Loan is a type of mortgage that allows borrowers to qualify by demonstrating their ability to repay the loan using their substantial liquid assets.
Instead of focusing solely on monthly income, lenders consider the value of your accumulated wealth and calculate a "depleted income" from these assets over the loan term.
Unlike other forms of asset-based lending where assets might serve as collateral, in an asset depletion mortgage, the assets are primarily used to establish your repayment capacity.
You typically don't need to liquidate these assets, but rather prove their existence and sufficient value.
✅ Higher Loan Limits
Go beyond conventional loan caps and finance luxury homes or high-value properties with ease.
✅ Flexible Income Documentation
Use alternative methods like bank statements, asset depletion, or 1099s—perfect for self-employed or non-traditional earners.
✅ Credit Challenges Welcome
Recent credit events, such as bankruptcy or foreclosure, don’t automatically disqualify you.
✅ Customized Loan Structures
Interest-only options, 40-year terms, and other non-traditional setups are available to meet your financial goals.
✅ Perfect for Entrepreneurs & Investors
Designed with financially savvy buyers in mind who need a custom-fit loan—not cookie-cutter requirements.
How Does it Work?
The core principle of an Asset Depletion Loan is to convert a borrower's liquid assets into a hypothetical monthly income for qualification purposes. Here's a general breakdown of the process:
1.Asset Assessment: The lender evaluates your liquid assets. These commonly include:
Savings and checking accounts
Money market accounts
Certificates of Deposit (CDs)
Retirement accounts (e.g., 401(k), IRA – often with age restrictions, typically 57.5 or 59.5 years old for full consideration)
Investment accounts (stocks, bonds, mutual funds)
Sometimes even cash-out proceeds from a refinance can be factored in.
2. Calculation of "Depleted Income": Lenders apply a specific formula to determine a monthly income equivalent from your assets. This typically involves dividing the total qualifying assets by a predetermined period of months (e.g., 60 months for a 5-year qualifier, or 360 months for a 30-year loan term). The percentage of each asset type that can be used varies by lender (e.g., 100% for cash accounts, 70-80% for stocks and bonds, 70% for retirement funds).
For example, if you have $1,000,000 in qualifying liquid assets and the lender uses a 360-month depletion period, your monthly "income" for qualification would be approximately $2,777.78.
3. Loan Qualification: This calculated "income" is then used by the lender, often in conjunction with other financial factors like credit score, to determine your eligibility and the maximum loan amount you can qualify for.
You may be eligible if:
WHO QUALIFIES?
Substantial Liquid Assets: Certificates of Deposit (CDs), Retirement Accounts (401(k), IRA, SEP, KEOGH), Other Verifiable Liquid Assets
Good Credit Score: While the focus is on assets, a strong credit history is still important. Most lenders look for a minimum FICO score of 620-680, with higher scores potentially leading to better interest rates.
Debt-to-Income (DTI) Ratio: Even with asset depletion, lenders will calculate a DTI based on your hypothetical "depleted income" and existing debts. While thresholds can be more flexible than traditional loans, a DTI often no higher than 43-50% is generally preferred.
Down Payment: Asset depletion loans are often considered higher risk for lenders, so a substantial down payment is typically required, often 20% or more. This reduces the loan-to-value (LTV) ratio and the lender's exposure.
Reserves: Lenders may require you to maintain a certain amount of liquid reserves (e.g., 6-12 months of mortgage payments) after the loan closes, demonstrating your continued financial stability.
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Notice To Texas Loan Applicants: Consumers wishing to file a complaint against a mortgage banker, or a licensed mortgage banker residential mortgage loan originator, should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, TX 78705. Complaint forms and instructions may be obtained from the department’s website at www.sml.texas.gov https://bit.ly/3B5pAfz.
A toll-free consumer hotline is available at 1-877-276-5550. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at www.sml.texas.gov