Income Calculation Methodology for Asset Depletion Loans (Asset Qualifier Programs)
Purpose and Definition of Asset Depletion Loans
Income Calculation Methodology for Asset Depletion Loans revolves around the central function of calculating an “imputed monthly income” based on the borrower’s accumulated liquid assets. This imputed income is then used to demonstrate the borrower’s Ability-to-Repay (ATR) the mortgage obligation
Asset Depletion Loans are specialized Non-Qualified Mortgages (Non-QM) designed for borrowers who possess significant liquid assets but lack traditional, verifiable monthly income, such such as retired professionals or high-net-worth investors. Because these individuals often rely on portfolio-based income rather than paychecks, their financial profiles complicate qualification under traditional lending guidelines.
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Key Program Parameters:
- Property Type: These loans are typically intended for financing a borrower’s Primary Residence or a Second Home. Investment properties are generally ineligible.
- Required Action: Borrowers are not typically required to liquidate or cash in their assets to qualify; the assets merely demonstrate the capacity to make payments.
Core Calculation Methodology (Amortization Term)
The imputed monthly income is derived by taking the net qualifying asset value and amortizing it over a defined period (the denominator in the calculation), typically without applying a rate of return.
A. Standard Calculation Formulas
| Calculation Type | Amortization Term | Formula/Usage |
| Asset Depletion (General) | 84 Months (7 Years) | Net Qualifying Assets / 84 Months = Imputed Monthly Income. This term is used by several NQM programs, including Sharp Expanded and Horizon Elite Jumbo. |
| Asset Utilization (Horizon/our Advantage) | 84 Months (7 Years) | Used for general Asset Amortization Income calculation in some Advantage programs. |
| Asset Qualifier (Residual Income) | 60 Months (5 Years) | Used to calculate gross income for the purpose of determining Residual Income in the Asset Qualifier product line. |
| Asset Utilization (DTI Dependent) | 36 or 60 Months | When DTI without asset utilization is ?60%, a 36-month term is used. If DTI is >60% or if assets are the entire income source, a 60-month term is used. |
| Long-Term Passive Utilization | 120 Months (10 Years) | Term utilized for Passive Asset Utilization under certain programs. |
| General Imputation | 360 Months | Some lenders calculate imputed monthly income by dividing total liquid assets by 360 months (the typical mortgage duration). |
Net Assets Exclusion
Crucially, any funds needed to complete the transaction must be subtracted from the total asset base before the calculation is performed. This means that assets used for the down payment, closing costs, and required reserves must be excluded from the “Net Eligible Assets” balance.
Asset Eligibility, Seasoning, and Valuation
Only verified, liquid assets can be used in the Asset Depletion Loan calculation. These assets are subject to specific “haircuts” or discount factors based on their liquidity and accessibility.
A. Eligible Assets and Discount Factors
| Asset Type | Standard Percentage of Value Used | Notes |
| Depository Accounts | 100% | Checking, Savings, and Money Market accounts. |
| Marketable Securities | 80% (Some programs use 85%) | Publicly traded Stocks, Bonds, and Mutual Funds. |
| Retirement Accounts (? 59 ½) | 80% or 70% | When of retirement age, some programs use 80%. Our Horizon uses 70% of vested value, or 80% if of retirement age. |
| Retirement Accounts (< 59 ½) | 70% or 60% | Discounted due to early withdrawal penalties. Our Horizon uses 60% of vested value for those under 59 ½. |
| Life Insurance/Annuities | 100% of Cash Surrender Value | Must be net of any surrender charge or loans. |
B. Seasoning and Ineligible Assets
Assets must be seasoned for a minimum of 90 days and verified with consecutive statements. Some programs require 120 days of seasoning for Asset Utilization.
Ineligible assets include business accounts/funds (which may be eligible for down payment, but not income calculation), unseasoned foreign assets, restricted stock, and gift funds. Assets already generating reportable income (like dividends or capital gains) used for qualification generally cannot also be used for depletion.
Income Integration and Debt Qualification
The utilization of asset income depends on the specific product track being used (Asset Depletion vs. Asset Utilization).
A. Combination with Other Income Sources
- Asset Depletion (Sole Source): Under strict programs (like NQM Funding’s Flex Supreme), the imputed asset income is treated as the sole source of income and cannot be combined with other employment sources (W-2s, self-employment income).
- Asset Utilization (Supplemental): Other programs permit Asset Amortization Income to be used either independently or combined with other sources of income, such as rent, pension, Social Security, and W-2 income.
B. Debt Qualification and DTI
- DTI Calculation: When Asset Utilization is used as a supplemental income source, the borrower’s maximum Debt-to-Income (DTI) ratio is typically capped at 45%. Other standard Alt Doc programs cap the DTI at 50%.
- Residual Income: For the Asset Qualifier product, where DTI is not developed, the amortization calculation (often using 60 months) is used to find the gross income, and then total monthly debts are subtracted to find the Residual Income. This Residual Income must meet a minimum threshold, such as $1,300 per month.
- Debt Inclusion: Regardless of the income method, DTI calculations must include monthly housing expenses (PITIA) and all liabilities, including deferred installment debts (like student loans) and revolving debt. Alimony and child support payments must also be included in the total debt obligations.
FAQ's
While 84 months is standard, some programs use different terms. For instance, the Passive Asset Utilization program may use a 10-year (120 month) term. Additionally, some of our programs use 60 months (five years) or even 36 months depending on the borrower’s existing Debt-to-Income (DTI) ratio without the assets.
Assets must be verified as held (seasoned) for a minimum period, commonly 90 days (three months). However, some of our Edge programs require a longer seasoning period of 120 days (four months).
Under certain strict programs, such as NQM Funding’s Flex Supreme guidelines, the Asset Depletion calculation must be used as the sole source of income and cannot be combined with other income sources like part-time wages or rental income.
No. Assets used to calculate the imputed monthly income via amortization cannot also be used as another source of qualifying income (such as dividends, interest, or capital gains) to prevent double-counting.
Borrowers aged 59 ½ or older (or RMD-eligible) may have their vested retirement accounts counted at 80% of the vested value for the income calculation.
If the borrower is under the age of 59 ½, retirement accounts are typically discounted due to potential early withdrawal penalties. They are counted at 70% of the vested value, though some guidelines specify 60%.
Marketable Securities (stocks, bonds, mutual funds) are typically discounted due to market volatility and are often counted at 80% of their remaining value. However, some Prime Non-QM guidelines may use 85%.
Yes, Depository Accounts (Checking, Savings, and Money Market accounts) are generally counted at 100% of their face value when determining the qualifying asset balance.
Before performing the division, the following amounts must be subtracted from the borrower’s total liquid assets to determine the “Net Qualifying Assets”: funds used for the down payment, closing costs, prepaids, and required reserves.
The core formula is typically the Net Qualifying Assets divided by a fixed amortization period of 84 months (seven years). This calculation results in the “Imputed Monthly Income” used to qualify the borrower.
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