Asset Seasoning and Retirement Account Rules for asset depletion
Asset Seasoning Requirements for Asset Depletion
Asset seasoning rules require the borrower to prove that the funds used for qualification are established and stable, not recently acquired. The minimum seasoning period can vary depending on the lender and the specific program guidelines.
A. Minimum Seasoning Periods
- Assets must generally be seasoned for at least 90 days and located in a U.S. bank or financial institution.
- Specific program guidelines reinforce this, requiring 3 months seasoning of assets in U.S. banks or three (3) months’ seasoning of all assets (three most recent and consecutive statements).
- Other guidelines require Asset Utilization income to verify 3 months of consecutive statements within 60 days of the note date.
- For loans using assets for down payment, closing costs, or reserves, some guidelines require asset statements to cover at least 60 days.
- One guideline for the Edge Series explicitly requires assets used for qualifying income to be seasoned 120 days.
- Assets accounts utilized to derive distributions for qualification purposes must show ownership for a minimum of 12 months.
B. Statement Timing and Verification
- The asset balance verification must be within 30 days of the note date if statements are issued quarterly.
- Generally, asset statements are valid for 90 days or 120 days from the time of closing.
- Assets statements provided must include a minimum consecutive 60 days.
- In one program, the most recent statement must be within 60 days of the note date.
- For Asset Utilization, four months statements are required.
C. Large Deposits and Source Exclusion
- Any funds needed for the down payment, closing costs, and required reserves must be excluded from the net assets used for the depletion calculation.
- Unusual large deposits (e.g., deposits exceeding 50% of the total qualifying income or average monthly deposits) must be documented and come from an eligible source.
- Ineligible assets include business accounts, unseasoned foreign accounts, restricted stock, gift funds, and windfall (e.g., inheritance, lottery winnings, etc.). However, some guidelines allow proceeds from the sale of a business, inheritance, or legal settlement to be used and do not require seasoning with proper documentation.
Retirement Account Rules for Asset Depletion
Retirement accounts (such as 401(k) and IRA) are acceptable assets for asset depletion/utilization. However, their usability is highly dependent on the borrower’s age, ability to access the funds, and the amount counted toward qualification.
A. Vested Value and Access Restrictions
- We must verify that the retirement account is vested and allows withdrawals regardless of current employment status.
- The accounts must be accessible and not subject to early withdrawal penalties.
- We may only allow a partial credit, or no credit at all, for retirement assets if the borrower is not yet at or near retirement age.
- Non-vested restricted stock units are generally ineligible assets.
B. Discounting/Haircuts Applied to Retirement Accounts
The percentage of the retirement account balance counted toward qualifying income depends on the program and the borrower’s age:
| Borrower Age / Condition | Discount Percentage Applied | Applicable Guideline/Program |
| Retirement Age (? 59 ½) | 80% of the vested balance | Advantage / NonQM Underwriting Guidelines (General Rule) |
| Retirement Age (? 59 ½) | 100% if the asset is a depository account | Advantage / Horizon Elite Jumbo |
| Non-Retirement Age (< 59 ½) | 70% of the vested balance | Advantage / NonQM Underwriting Guidelines (General Rule) |
| Non-Retirement Age (< 59 ½) | 90% if the asset is a depository account | Advantage / Horizon Elite Jumbo |
| Asset Qualifier | 70% (unless retirement age, then 80%) | Non-QM Connect / Asset Qualifier |
| Edge Series (General Vested) | 70% for all vested retirement assets | Non-QM Edge Series |
| Prime Non-QM (Reserves) | 60% of the vested amount, reduced by 40% to reflect income taxes and penalties when withdrawn | Prime Non-QM Series |
C. Retirement Account Distributions (Income and Continuance)
When retirement funds are used to calculate an income stream, documentation is required to ensure the stream is sustainable:
- Continuance Requirement: If the retirement income is in the form of distributions (such as 401(k) or IRA), we must determine whether the income is expected to continue for at least three years after the date of the mortgage application.
- Depletion Calculation: When retirement accounts are used for asset utilization, the value of the asset must be reduced by the funds being withdrawn prior to determining if a 3-year continuance of income is possible.
- Qualifying Balance: When setting up distributions from retirement accounts, we utilize 80% of the vested value to determine the qualifying balance, and the borrower must be of retirement age.
- Reserves: Eligible retirement accounts may be included in reserves. Vested Retirement Accounts may be considered at 100% of value for reserves in some programs.
- Ineligible Combination: Income generated from retirement accounts (e.g., interest, dividends, capital gains) cannot be used for qualifying in addition to the asset utilization calculation derived from the same retirement accounts.
FAQ's
Asset balances must be verified via statements or other documentation within 120 days of the note date. For reserves or asset qualification, documentation of market-based assets must be updated within 30 days of the note date.
Vested Retirement Accounts may be considered at 100% of value for reserves, although some programs apply a discount (e.g., 70% or 80%).
Non-vested restricted stock units and privately traded or restricted stocks are ineligible for asset utilization calculations.
Yes, but the value is reduced. If the account is used for both income continuance and reserves, its value must be reduced by the funds being withdrawn before determining the 3-year continuance.
If retirement income is in the form of distributions (such as 401(k) or IRA), documentation must confirm that the income is expected to continue for at least three years after the date of the mortgage application.
If the borrower is of retirement age, 80% of the vested balance is commonly used for qualification.
Vested retirement accounts for borrowers under age 59 ½ are typically subject to a “haircut” and counted at 70% of their vested balance.
The lender must verify that the retirement account is vested and allows withdrawals regardless of current employment status, meaning the assets are accessible and not subject to early withdrawal penalties.
Asset statements must reflect a minimum of 60 days of consecutive asset verification. For some Asset Utilization programs, three (3) months of recent and consecutive statements are required.
Assets must generally be seasoned for at least 90 days or three (3) months, and must be held in a U.S. bank or financial institution.
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