Options for asset-rich but lack traditional monthly income documentation
Mortgage Options for Asset-Rich, Income-Light Borrowers
Target Borrower Profile and the Need for Non-QM Solutions
Affluent individuals, particularly those in or approaching retirement, frequently have substantial investment portfolios, but little or no verifiable monthly income. This transition from a regular paycheck to portfolio-based income complicates mortgage qualification under traditional lending guidelines, which rely on employment verification, W-2s, or tax returns.
The most suitable Non-QM solutions address this constraint by calculating a borrower’s qualifying income directly from their assets. These loans are singularly focused on borrowers who have high asset balances but don’t meet standard income verification requirements.
Primary Solution: Asset Depletion/Asset Qualifier Loans
Asset Depletion (AD) or Asset Qualifier (AQ) loans are the core solution for this demographic. These programs calculate a borrower’s ability to repay based on the value of their liquid or liquidatable assets.
1. Calculation and Imputed Income
We determine a borrower’s imputed monthly income by dividing their Net Qualified Assets over a defined period, known as a utilization draw schedule. This calculation allows the borrower to prove they have sufficient funds to cover the loan even without regular employment income.
A common calculation for determining qualifying monthly income is:
Net Qualifying Assets/Amortization Term (e.g., 84 Months)=Imputed Monthly Income
Specific amortization terms vary by program:
- 84 Months (7 Years): A frequently cited standard draw schedule.
- 60 Months (5 Years): Used in some programs, particularly for Asset Qualifier products, to determine residual income.
- 120 Months (10 Years): Used in certain programs for passive asset utilization.
2. Eligible and Ineligible Assets
Assets must typically be seasoned for a minimum of 90 days and held in a U.S. bank or financial institution.
| Asset Type | Typical Inclusion Percentage |
| Depository Accounts (Checking, Savings, Money Market) | 100% of value |
| Marketable Securities (Stocks, Bonds, Mutual Funds) | 80% to 85% of value |
| Retirement Accounts (IRA, 401(k)) for borrowers ? 59 ½ | 80% of vested value |
| Retirement Accounts for borrowers < 59 ½ | 60% to 70% of vested value |
| Cash Surrender Value of Life Insurance/Annuity | 100% |
| Cryptocurrency (Bitcoin/Ethereum) | 50% of value (when eligible) |
Assets that are ineligible generally include business accounts, unseasoned foreign accounts, non-marketable securities (e.g., private investments), restricted stock, and gift funds (in some programs). The net assets used for qualification must exclude any funds reserved for the down payment, closing costs, or required reserves (if applicable).
3. Program Requirements and Scope
Asset Depletion/Qualifier loans are generally structured with the following restrictions:
- Occupancy: Typically restricted to Primary Residences (Owner-Occupied). Note that some guidelines for the Flex Supreme program indicate primary and second homes are eligible, but other product guidelines often specify Owner Occupied Only.
- Cash-Out Refinance: Often not eligible under the Asset Qualifier program.
- Income Mixing: In some programs, asset depletion cannot be combined with other income sources; it must be used as the sole source of income. However, other Non-QM programs (Asset Amortization) allow it to be combined with other income sources.
- Residual Income: For Asset Qualifier, no DTI is developed. Instead, the borrower must meet a minimum monthly Residual Income threshold (e.g., $1,300).
- No Employment Verification: For the Asset Qualifier product, qualification is determined solely based on liquid assets, meaning no income or employment verification needs to be supplied.
Asset depletion is considered crucial for clients, such as retired hedge fund managers or former small business owners, who wish to retain liquidity by financing a purchase rather than paying cash, and potentially benefit from mortgage interest tax deductions.
Other Non-QM Options Leveraging Assets or Portfolio Income
Asset-rich individuals may also qualify using other specialized Non-QM income documentation types:
1. Asset Utilization (Distribution Income)
This option is suitable for non-retirement assets already set up for regular distribution payments.
- Verification: Regular distributions from non-retirement accounts must be set up and verified, requiring proof of at least 12 months of asset ownership and documentation that the distribution will continue for at least three years from the closing date.
- Retirement Distributions: Retirement assets can be used if they are vested and allow withdrawals regardless of current employment status. For IRA distributions, the income must be expected to continue for a minimum of three years.
2. Portfolio and Investment Income (Full Documentation)
For high-net-worth borrowers who actively generate investment returns, standard Full Documentation programs may be used, provided they meet strict continuance rules:
- Capital Gains: Consistent gains from similar asset types for two continuous years may be considered as qualifying income. The underwriter must ensure the borrower has an “inventory” of similar assets to support the continuance of the gains.
- Dividend and Interest Income: Consistent income from similar asset types for two continuous years may be considered, and sufficient assets must be documented to support the income’s continuance.
3. DSCR Loans (Investment Properties Only)
If the transaction is for an income-producing property (Investment Property), the borrower may avoid personal income verification entirely by using a Debt Service Coverage Ratio (DSCR) loan.
- Qualification Basis: The DSCR loan assesses qualification solely based on the property’s cash flow, determined by the ratio of the Gross Monthly Rental Income to the Proposed Monthly Debt Obligations (PITIA or ITIA).
- Personal Income: No income or employment verification is required for the DSCR product, and consequently, no DTI ratio is calculated.
- DSCR/Asset Hybrid: Some programs now offer a hybrid DSCR calculation that allows investors to use eligible assets to calculate a monthly qualifying income, which is added to the rental income to help meet the DSCR requirement.
FAQ's
Our Non-QM Connect program supports Asset Depletion loans up to $3,000,000. The NQM Funding Flex Supreme program also supports loan amounts up to $3 million.
This varies by program. While some Asset Amortization programs allow the creation of an income stream from assets to be used with other sources of income or independently, other programs, such as NQM’s Flex Supreme, specify that asset depletion is not supplemental and must be used as the sole source of income.
Typically, the Asset Qualifier product is restricted to the borrower’s Primary Residence and, in some cases, second homes. DSCR (Debt Service Coverage Ratio) loans are the Non-QM solution specifically tailored for investment properties.
No, the DTI ratio is not developed for the Asset Qualifier product. Instead, the borrower must meet a minimum monthly Residual Income requirement (e.g., $1,300 per month for the Connect Asset Qualifier product).
No, the borrower is not required to cash in their assets right away. The assets are simply used to demonstrate an ability to make the mortgage and housing payments.
No, the percentage counted depends on age. For borrowers aged 59 ½ or older, retirement accounts may be counted at 80%, while borrowers under 59 ½ may only count 60% or 70% of the vested value, depending on the program.
Acceptable assets generally include checking and savings accounts (often counted at 100% of value), stocks, bonds, and mutual funds (80% to 85% of value), and vested retirement accounts.
These programs are ideal for recently retired professionals, investors living off their portfolios, or high-net-worth individuals without a regular paycheck. These borrowers often face complicated mortgage qualification under traditional guidelines that rely on standard employment verification.
Lenders determine an imputed monthly income by dividing the borrower’s Net Qualifying Assets over a defined period, frequently 84 months (7 years). However, some Non-QM Asset Qualifier programs may use a 60-month calculation period for determining gross income.
The primary solution is the Asset Depletion or Asset Qualifier loan. This solution is tailored for borrowers who are asset-rich and income-light.
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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.
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