What are the key requirements for asset depletion loans
Key Requirements for Asset Depletion Loans
The key requirements for Asset Depletion loans work well for profiles such as recently retired professionals, investors living off their portfolios, and high-net-worth individuals without a regular paycheck.
ATR Compliance and Loan Classification
As Non-QM loans, Asset Depletion products must strictly adhere to ATR standards.
- ATR Requirement: The loan file must include documentation of the borrower’s ability to repay the mortgage, adhering to the standards set forth in the CFPB’s Reg Z, Section 1026.43(c).
- Affordability Determination: Affordability is accomplished by requiring a Debt-to-Income (DTI) calculation in the standard Asset Depletion program. Alternatively, the Asset Qualifier program requires a residual income calculation.
Core Qualification Formula (Imputed Income)
The central requirement is the conversion of net assets into an imputed monthly income stream.
| Requirement | Details |
| Calculation Formula | Net Qualifying Assets / 84 Months = Imputed Monthly Income. The calculation uses an 84-month amortization schedule for DTI purposes. |
| Passive Asset Utilization | Borrowers who choose not to set up formal asset distributions may be qualified by dividing their assets by a 10-year (120 month) term. |
| Funds Exclusion | Funds needed for the down payment, closing costs, and required reserves must be excluded from the total assets before the calculation is performed. |
| Income Blending | Under some NQM guidelines, asset depletion cannot be combined with other employment income sources; it must be used as the sole source of income. However, other non-employment sources of income may be considered on a case-by-case basis. |
Asset Eligibility, Seasoning, and Documentation
The assets used must be liquid, seasoned, and properly documented.
A. Eligible Assets and Discounting (“Haircuts”)
Acceptable assets are those that are easily and readily convertible to cash:
- Acceptable Accounts: Checking and savings accounts, money market accounts, mutual funds, and publicly traded stocks and bonds.
- Retirement Accounts: 401(k) and IRA retirement accounts are generally eligible, but are subject to access restrictions. Retirement accounts are typically discounted to 70% of their vested balance, or 80% if the borrower is of retirement age (? 59 ½).
- Asset Haircuts: Depository accounts are generally counted at 100% of face value. Marketable securities (publicly traded stocks/bonds/mutual funds) are often discounted and counted at 80% of their remaining value.
B. Documentation and Seasoning
- Minimum Seasoning: Assets must be seasoned for at least 90 days and located in a U.S. bank or financial institution. Some guidelines specify three (3) months’ seasoning. Some Edge Series guidelines require assets to be seasoned 120 days.
- Statement Requirements: Asset statements provided must reflect a minimum consecutive 60 days of activity. For Asset Utilization, four months statements are required.
- Large Deposits: Deposits exceeding 50% of the total qualifying income or average deposits must be sourced and documented to ensure they come from an eligible source.
- Ineligible Assets: Business accounts, gift funds, unseasoned foreign accounts, restricted stock, and windfall (e.g., lottery winnings or inheritance) are generally ineligible.
Credit, DTI, and Loan Parameters
We require strong compensating factors in credit and liquidity to offset the use of alternative income documentation.
- Minimum Credit Score: A high credit score is typically preferred. Minimum FICO requirements can range from 680 to 700 or greater.
- Maximum DTI (Asset Depletion): For the standard Asset Depletion program, the maximum DTI is generally 50%. However, if assets are used as a supplemental income source, the maximum DTI may be capped at 45%.
- Residual Income (Asset Qualifier): For the Asset Qualifier product where no DTI is developed, the resulting residual income (calculated over 60 months) must meet a minimum threshold, such as $1,300.
- LTV Limits: Maximum LTV can vary, reaching up to 85%. However, some programs require the Maximum LTV to be reduced by 10% from standard LTVs.
- Reserves: Reserves are not required for the Asset Depletion and Asset Qualifier programs under the Sharp Series guidelines. However, other Alt Doc programs may require reserves, such as 6 months PITIA.
- Ineligible Transactions: Loans using Asset Utilization are not eligible for Cash-Out Refinance transactions.
- Property Type: Asset Depletion/Asset Qualifier programs are typically eligible for Primary and second homes.
FAQ's
Some programs require borrowers to have qualifying assets that are greater than or equal to 125% of the original subject loan amount or a minimum of the lesser of $1 million in Qualifying Assets.
Cash-Out Refinance transactions are frequently ineligible or require the LTV to be reduced further (e.g., Max 60% LTV in the Edge Series).
Borrowers should generally expect to need a down payment of at least 20% or more. Maximum LTVs often range from 85% (15% down) to 80% (20% down).
No. Under some guidelines (e.g., NQM’s Flex Supreme), asset depletion cannot be combined with other employment income sources and must be used as the sole source of income.
Funds needed for the down payment, closing costs, and required reserves must be excluded from the assets available for depletion calculation.
A strong credit score is required to offset the lack of traditional income documentation. Minimum FICO requirements typically start at 680 but often require 700 or higher.
Assets must generally be seasoned for at least 90 days (three months) and must be located in a U.S. bank or financial institution.
The qualifying income is calculated by dividing the Net Qualifying Assets by 84 months (seven years) to determine the Imputed Monthly Income, which is used for DTI purposes.
The ideal borrower is asset-rich and income-light, such as recently retired professionals or high-net-worth individuals who do not have a regular paycheck.
Asset Depletion Loans must satisfy the Ability-to-Repay (ATR) requirements, a mandate ensuring the lender determines the applicant has the financial capacity to repay the mortgage.
527 Sycamore Valley Rd W, Danville, CA 94526
Toll Free Call : (866) 280-0020
For informational purposes only. No guarantee of accuracy is expressed or implied. Programs shown may not include all options or pricing structures. Rates, terms, programs and underwriting policies subject to change without notice. This is not an offer to extend credit or a commitment to lend. All loans subject to underwriting approval. Some products may not be available in all states and restrictions may apply. Equal Housing Opportunity.
Interactive calculators are self-help tools. Results received from this calculator are designed for comparative and illustrative purposes only, and accuracy is not guaranteed. Shining Star Funding is not responsible for any errors, omissions, or misrepresentations. This calculator does not have the ability to pre-qualify you for any loan program or promotion. Qualification for loan programs may require additional information such as credit scores and cash reserves which is not gathered in this calculator. Information such as interest rates and pricing are subject to change at any time and without notice. Additional fees such as HOA dues are not included in calculations. All information such as interest rates, taxes, insurance, PMI payments, etc. are estimates and should be used for comparison only. Shining Star Funding does not guarantee any of the information obtained by this calculator.
Privacy Policy | Accessibility Statement | Term of Use | NMLS Consumer Access
CMG Mortgage, Inc. dba Shining Star Funding, NMLS ID# 1820 (www.nmlsconsumeraccess.org, www.cmghomeloans.com), Equal Housing Opportunity. Licensed by the Department of Financial Protection and Innovation (DFPI) under the California Residential Mortgage Lending Act No. 4150025. To verify our complete list of state licenses, please visit www.cmgfi.com/corporate/licensing