The lender must document and underwrite the loan application sources. version of a page. documentation requirements necessary for the lender to process the loan application. Your assets are your pieces on the board, and the lender is your opponent. refinance transactions. To make it easy, use assets as an income calculator but here are the basics: For savings, divide 100% of the amount over the term of the loan. Additionally, working with a mortgage broker or financial advisor who specializes in asset depletion mortgages can also be helpful in finding a lender that offers these types of loans. What is Asset Depletion and Why is it Important? The amount they can spend on a mortgage depends on their existing debts and the lenders maximum debt-to-income ratio. Estate Asset. It helped provide continuous and steady funding for housing and introduced a new type of mortgage to the market: the long-term, fixed-rate loan with an option to refinance at any time. Additionally, well cover how to calculate asset depletion for mortgage purposes and the factors lenders take into account when evaluating a borrowers asset depletion. Car Repossession Loopholes Avoid Car Repossession Rep, 2023 Savings Challenge: How To Save $10,000 in 3 Months FAST Money Savings. Well also take a closer look at how borrowers can use their assets as a source of income to lower their debt-to-income ratio requirements. Should you use an asset depletion mortgage? For a comprehensive list of resources such as access forms, announcements, lender letters, notices and more. of an asset, care must be taken when this is the sole source or the majority of qualifying dates. 2022 Michaelryanmoney.com. Any income paid to or earned by the borrower in the form of virtual currency, such Courts may also consider dissipation as a factor when dividing marital property and awarding spousal support or alimony. B3-4.3-14, Bridge/Swing Loans for additional information. Borrowers with a 25% or greater ownership interest One of the common challenges when applying for asset depletion mortgage loans is finding a lender that offers this type of loan, as it is not widely available. What Is a Fannie Mae Asset Depletion Mortgage? If so, you may be interested in learning about Asset Dissipation Underwriting and Asset Depletion Mortgages. Fannie Maes underwriting guidelines emphasize the continuity of a borrowers stable If the actual amount of federal and state taxes that would generally be paid by a It is important for borrowers to research their options thoroughly and work closely with the lender and underwriter to address any potential issues. information from other Fannie Mae published sources. B3-4.3-18, Sale of Personal Assets, for additional information.) Federal National Mortgage Association Fannie Mae (LTS:0IL0) Average Interest Earning Assets (USD Mil) as of today (February 26, 2023) is 0.00. Heres how their monthly income might be calculated. B3-3, Income Assessment for additional information about specific tax return requirements. First, they should work with a knowledgeable lender who is experienced in offering asset depletion mortgage loans. Allows borrowers with assets but no income to qualify, Higher interest rates and fees compared to traditional mortgages, Allows intentional and marital asset depletion, Borrowers must have a minimum asset value and meet debt-to-income ratio guidelines, Uses assets such as savings, investments, and retirement accounts, including IRA accounts, Borrowers may need to provide extensive documentation of their assets. to this topic. Note: Because these income sources have a defined expiration date or allow the depletion of an asset, care must be taken when this is the sole source or . documentation requirements described in this Chapter. Its important to note that significant assets that may not be liquid, such as real estate holdings, are not typically included in the asset depletion calculation. B3-6-05, Monthly Debt Obligations. Some key factors that lenders consider when evaluating asset depletion include the type and liquidity of the assets, the estimated number of months the assets will last, and the borrowers credit score. This strategy involves reducing the value of assets on paper, typically through nonessential spending or gifting, so that they fall within the eligibility requirements for the loan or mortgage. Explore loan programs with Freddie Mac. 45% maximum with exceptions up to 50%. However, borrowers who do not meet the eligibility requirements for these loans may use intentional dissipation as a way to qualify for them. There are two ways to do this. There are a few facts and figures borrowers need to understand before diving into an asset depletion program. If you have questions about money, I will help you find the answers at www.MichaelRyanMoney.com. Lending Standards for Asset Dissipation Underwriting. Now that the borrower has successfully secured an asset depletion mortgage loan, its time to move forward with closing the loan. one monthly statement (30 days of account activity) for all limited cash-out and cash . We were able to use asset depletion underwriting to calculate the borrowers assets and demonstrate that he had enough liquid assets to repay the mortgage loan, even with his low income. Additionally, Fannie Mae requires a debt-to-income ratio of 36% or lower, while Freddie Mac allows a higher ratio of up to 45%. A loan that is secured against a liquid asset owned by the borrower (such as a 401(k) Fannie Mae customers! Asset depletion mortgage loans are like a Swiss Army knife for borrowers. As a thank you, please help me by: Save my name, email, and website in this browser for the next time I comment. Down payments as low as 10%. I have since retired and decided I want to help individuals and business owners by offering personal financial coaching. non-U.S. citizens: copies of the borrower's signed federal income tax returns filed with the IRS for By using their assets, such as retirement funds or investment accounts, borrowers can demonstrate their ability to repay a mortgage loan without relying on their employment history or income. Intentional Dissipation refers to a strategy used in Asset Depletion Mortgage and Asset Dissipation Loan underwriting, where borrowers intentionally spend down their assets in order to qualify for a mortgage or loan. Try 12 Fun Money 30 Day Savings Challenge: Plan & Track For Extra Savings. And now, I have started my blog - www.michaelryanmoney.com - to bring financial literacy to everyone. . The good news here, the primary can be one to four units. Loans that are secured against real estate, or any other non-liquid asset, must be For a comprehensive list of resources such as access forms, announcements, lender letters, notices and more. Federal National Mortgage Association Fannie Mae's depreciation, depletion and amortization for the three months ended in Dec. 2022 was $0 Mil. to be used in the trending analysis (see below). When it comes to eligibility requirements for asset depletion mortgage loans, borrowers need to have significant assets to qualify. The program allows borrowers to deplete their assets intentionally to qualify for the mortgage, based on the property value. borrowers history of receipt, the frequency of payment, and the trending of the amount B3-3.1-06, Requirements and Uses of IRS IVES Request for Transcript of Tax Return Form 4506-C, for information about obtaining tax return transcripts. do not enter the amount of the loan both as a bridge loan and in a checking account, date. Another strategy for overcoming hurdles in the asset depletion mortgage process is to explore alternative sources of income. Please take a few minutes to watch a short training video. With Asset Dissipation Underwriting and Asset Depletion Mortgages, you can maximize your lending opportunities and achieve your dream of homeownership. closing. When DU validates assets, DU issues a message indicating the acceptable documentation. A type of mortgage where the borrowers liquid assets are used to. Just as a Swiss Army knife has multiple tools in one compact device, an asset depletion mortgage loan offers multiple benefits to borrowers in one streamlined package. Also known as asset dissipation, asset depletion is a way to qualify for a loan using substantial assets rather than income from employment. If you answered yes to any of these questions, but youre asset-rich, an asset depletion loan could be an ideal solution. there are positive factors that reasonably offset the shorter income history. B3-4.3-09, Earnest Money Deposit, for documentation requirements. Have you ever considered using your assets to qualify for a loan? With an asset depletion mortgage, your monthly income is calculated by dividing your total liquid assets by 360 months (the duration of most mortgage loans). Successful in leading underwriting teams, and training junior staff to handle . Asset depletion mortgages are designed for borrowers with significant assets but irregular income or who are retired. of deposit), DU will require the following: Monthly bank statements must be dated within 45 days of the initial loan application Age of Documentation. Unite Mortgage is Direct Seller Servicer of Fannie Mae & Freddie Mac. earnings reported on IRS Form 1099; receives income that cannot otherwise be verified by an independent and knowledgeable Without asset depletion underwriting, this client may have been unable to purchase the home he wanted or would have had to use a larger down payment, which may not have been financially feasible for him. While the exact requirements may vary from lender to lender, borrowers should expect to have at least $500,000 in liquid assets. Execution, Learning Loan-to-Value Refinance Option for specific requirements. Refer to the applicable topics in Chapter income documentation may be necessary to support a three-year continuance. FNMA (Federal National Mortgage Association Fannie Mae) Retained Earnings as of today (February 26, 2023) is $-73,011 Mil. By using their qualifying assets, borrowers can increase their chances of obtaining a mortgage loan and achieving their dream of homeownership. The lender can guide them through the application process and help them understand the specific requirements for asset documentation and other eligibility criteria. One of the benefits of a Fannie Mae asset depletion mortgage is that it is an asset-based loan, so borrowers with assets but no income can still qualify. assets as income calculator. For complete details, see FAQs: Using Income from Retirement and Employment-related Assets andB3-3.1-09, Other Sources of Income. If a bridge loan is obtained, the amount of the bridge loan is entered as an asset When applying for an asset depletion mortgage loan, borrowers are required to provide documentation for all assets used in the calculation, such as bank statements and retirement account statements. In conclusion, securing an asset depletion mortgage loan can be a viable option for borrowers with substantial assets but limited income. date, and the lender must confirm that the funds in the account have not been transferred By factoring in a borrowers qualifying assets and ability to repay the loan, lenders can offer more flexible options and help borrowers achieve their homeownership goals. Events, Determining the Need for Federal Income Tax Returns, Verification of Income for Non-U.S. Citizen Borrowers, Using Nontaxable Income to Adjust the Borrowers Gross Income, Reduced Income Documentation Requirements for High LTV Refinance Loans, B3-3.1-06, Requirements and Uses of IRS IVES Request for Transcript of Tax Return Form 4506-C, Salaried or commissioned borrower employed by a U.S. company or individual. funds and enter $20,000 as retirement funds. amount to qualify the borrower. commissions, bonuses, substantial amounts of overtime pay, or employment that is subject Examples of less predictable income sources include Note that for DU loan casefiles, only the most recent year employment verification vendor). Visit Selling and Servicing Guide Communications and Forms. This program allows you to deplete your assets as a way to count that money as income for the duration of the loan. Assets used for the calculation of the monthly income stream must be owned individually by the borrower, or the co-owner of the assets must be a co-borrower of the mortgage loan. If you have made it this far you probably appreciated the above article. Without asset depletion, these borrowers may not qualify for a mortgage loan despite their significant assets. is entered in Section 2a using the account type Cash Value of Life Insurance. They should also be ready to provide proof of ownership of these assets. feel free to email. For other For example, borrowers may have overtime income that is cyclical (transportation Asset depletion is an important concept to understand when it comes to mortgage lending. Freddie Mac Asset Depletion Mortgage Lending Guidelines. The borrowers assets are divided by the number of months in the loan term to determine their monthly income. A non-self-employed severance package or non-self-employed lump sum retirement package (a lump sum distribution) these funds must be documented with a distribution letter from the employer (Form 1099R) and deposited to a verified asset account. source (two years returns); uses interest and dividend income to qualify; uses tip income reported on IRS Form 4137 that was not reported by the employer on The amount of the gift or grant is not included in available funds. Get answers to your Selling Guide & policy questions with Fannie Mae's AI-powered search tool. to another asset account that is verified with more current documentation. See Enter the amount of a bridge (or swing) loan in the asset section 2a of the loan application. Liquidity ratios. Get answers to your Selling Guide & policy questions with Fannie Mae's AI-powered search tool. available for closing. If the trend in the amount of income is stable or increasing, the income amount should Compared to traditional mortgage loans, asset depletion loans often have lower requirements, meaning that borrowers with substantial assets but limited traditional income may still qualify for a mortgage loan. Working with Lenders and Underwriters to Secure Asset Depletion Mortgage Loans, Mastering The No Spend Challenge: How To Stop Spending Money & Save Money. For information on U.S. citizens earning foreign income, refer to See Section B3-3.2, Self-Employment Income. This involves signing the necessary documents and providing the required funds for closing. Loan Purpose: Purchase and limited cash-out refinance only: Occupancy Freddie Mac Asset Depletion Mortgage Program. A former Financial Planner looking to help more people make their finances easier, with Financial Coaching. The exact calculations vary by lender which means its extra important to compare different mortgage lenders and find an asset depletion program that fits your needs. The stable and reliable flow of income is a key consideration in mortgage 2022 tax year: Outfitted for speed and accuracy, our editable and auto-calculating worksheets are fitted specifically for loan officers and mortgage pros. ADU, also known as asset depletion underwriting or asset amortization underwriting, uses an applicant's assets to calculate a hypothetical cash annuity stream. Self-Employment Income. The assets are only used to demonstrate an ability to make the mortgage and housing payments. The amount is entered in the asset section Max 90% LTV for Purchases and Rate & Term with No MI. using the requirements for self-employed borrowers, as described in Section B33.2, A gift of equity must meet the gift of equity requirements defined in Note: Eligibility requirements and application process may vary by lender. If the lender enforces a maximum debt-to-income ratio of 36 percent, the maximum possible mortgage payment in this scenario is $2,350. Some lenders may also offer asset depletion mortgage loans with different loan terms, such as 240 months or 180 months. A former stockbroker, financial planner, and owner of my own financial planning practice and then a property & casualty agency. This is particularly advantageous for retirees or individuals with substantial assets but limited traditional employment income. As with all mortgages, its important to find an asset depletion loan that offers favorable rates and terms for your situation. Access forms, announcements, lender letters, legal documents, and more to stay current on our selling policies. Think about your current budget as well as your longer-term financial goals as you plan. Both programs allow borrowers to use their assets, such as retirement accounts, stocks, and savings, to offset the lack of traditional income when qualifying for a mortgage. Unrecorded assignments of B3-4.3-10, Anticipated Sales Proceeds, for additional information. Are you retired with very little fixed income (or no income)? Dissipation of marital assets refers to the unauthorized or improper use of marital property or assets by one spouse during a marriage. Our free, easy-to-use calculators can help you crunch important numbers as you navigate your home journey. filed with the IRS for the past one or two years (depending on the income type) for In addition, mortgage borrowers are not required to cash in their assets right away. In this case the loan amount would be based on retirement assets only, with a 10% reduction since we were younger than 59-. 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