Imputed Income For Asset Depletion Loan
Program Overview and Core Function
Asset Depletion Loans are specialized Non-Qualified Mortgages (Non-QM) designed for borrowers who are “asset-rich and income-light,” such as affluent retirees or investors living off their portfolios, who may not have verifiable monthly W-2 or self-employment income.
The core function is to calculate imputed income for asset depletion loans by leveraging the value of their liquid assets. This method is used to satisfy the federal Ability-to-Repay (ATR) rule, demonstrating that the borrower has the capacity to make mortgage payments. It is important to note that borrowers are generally not required to liquidate their assets immediately; the assets are used solely to demonstrate an ability to cover the debt.
Property Eligibility: Asset Depletion and Asset Qualifier programs are typically intended for financing a borrower’s Primary Residence or a Second Home, and are generally ineligible for investment properties.
Imputed Income Calculation Methodology
The calculation converts the net value of eligible liquid assets into a monthly income stream using a fixed amortization term (or draw schedule).
A. Calculation Formulas and Amortization Terms
The standard calculation involves dividing the net qualified asset balance by a set number of months:
Calculation Context | Standard Amortization Term | Formula/Notes |
Asset Depletion (General) | 84 Months (7 Years) | Net Qualifying Assets / 84 Months = Imputed Monthly Income. This is a common standard used for many Asset Depletion/Utilization programs. |
Asset Qualifier (Residual Income) | 60 Months (5 Years) | This term is specifically used for the Asset Qualifier product to calculate the Gross Income when residual income is determined (rather than DTI). |
Asset Utilization (DTI Dependent) | 36 or 60 Months | If the Debt-to-Income (DTI) ratio without utilizing assets is ?60%, 36 months is used. If the DTI is >60% or if assets are the borrower’s entire source of income, 60 months is used. |
Passive Asset Utilization (Long-Term) | 120 Months (10 Years) | This amortization term is used in the Prime Non-QM series. |
General Asset Depletion | 360 Months | General literature may define the monthly income calculation by dividing total liquid assets by 360 months (the duration of most mortgage loans). |
B. Determining Net Qualifying Assets (Exclusions)
Before applying the amortization calculation, the total asset value must be reduced to find the net eligible assets:
- Exclusions: Any funds intended for the down payment, closing costs, prepaids, and required reserves must be excluded from the total asset balance.
- Borrower Alignment: All individuals listed on the asset account must also be borrowers on the loan.
- Seasoning: Assets must generally be seasoned (held) for a minimum of 90 days and verified with consecutive statements. Some Asset Utilization programs require up to 4 months (120 days) of statements.
Asset Eligibility and Valuation (Haircuts)
Not all assets are counted at 100% of their face value. Valuation discounts (or “haircuts”) are applied based on the asset type and accessibility:
| Asset Type | Percentage Used for Calculation | Notes |
| Depository Accounts | 100% | Checking, Savings, and Money Market accounts. |
| Marketable Securities | 80% (or 85%) | Stocks, bonds, and mutual funds. Prime NQM uses 85%. |
| Retirement Accounts (? 59 ½) | 80% (or 70%) | Requires vested funds and unrestricted access without penalty. |
| Retirement Accounts (< 59 ½) | 70% (or 60%) | Discounted to account for potential early withdrawal penalties. |
| Cash Value of Life Insurance | 100% | Based on the cash surrender value. |
Ineligible Assets: Ineligible assets generally include gift funds, business accounts, unseasoned foreign assets, restricted stock, and any asset that is already generating reportable income (like capital gains or dividends) used in the qualification process, as this would constitute double-counting.
Income Integration Rules
The Asset Depletion Loan income can be used as a standalone figure or combined with other income sources, depending on the specific program:
- Sole Source Requirement (Asset Depletion/Qualifier): Under stringent programs (such as NQM Funding’s Flex Supreme), the imputed asset income is treated as the sole source of qualifying income. Under this model, it cannot be combined with other income sources derived from employment.
- Supplemental Source (Asset Utilization): In other Non-QM tracks (such as our Advantage/Edge), Asset Amortization Income can be used to supplement other sources of income (e.g., W-2, pension, Social Security, or rental income). When used supplementally, the maximum Debt-to-Income (DTI) ratio is typically capped at 45%.
FAQ's
This depends on the specific program. Under strict programs like NQM Funding’s Flex Supreme, asset depletion must be the sole source of qualifying income and cannot be combined with employment income. However, under our general Asset Amortization guidelines, it can be used with other sources of income or independently.
If the borrower is under the age of 59 ½, retirement accounts are discounted to account for potential penalties for early withdrawal. These accounts are usually counted at 70% of the vested value. Some of our Horizon programs use 60%.
Assets must be verified as held and seasoned for a minimum period. This requirement is commonly 90 days. Some programs, like our Edge series, require 120 days of seasoning.
No. Assets used for the amortization calculation cannot also be used as another source of income (such as dividends, interest, or capital gains) to avoid double-counting the income from the same source.
Yes. In the Prime Non-QM series, Passive Asset Utilization may divide assets over a longer period of 120 months (10 years). Alternatively, some general guidelines divide assets by 360 months (the duration of most mortgages) to calculate the monthly income.
If the Debt-to-Income (DTI) ratio without using assets is ≤60%, the calculation term may be a shorter 36 months. If the DTI is >60% or if assets represent the entire income source, a 60-month term may be used.
Marketable securities (stocks, bonds, mutual funds) are typically subject to a discount, often counted at 80% of their remaining value. Some guidelines, like the Prime Non-QM series, use 85%.
Depository accounts, such as checking, savings, and money market accounts, are generally included at 100% of their value in the qualifying asset calculation.
Any funds required for the transaction, including the down payment, closing costs, prepaids, and required reserves, must be subtracted from the total asset balance to determine the “Net Qualifying Assets”.
The standard calculation takes the borrower’s Net Qualifying Assets and divides that amount by a fixed amortization period, typically 84 months (seven years). This is used to determine the monthly income stream.
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