These typically include: Not all retirement accounts will qualify, depending on the mortgage borrowers age and potential penalties applied for accessing funds in the account. B5-5.1-02, Community Seconds Loan Eligibility . ), Selling, Securitizing, and Delivering Loans, Employment-Related Assets as Qualifying Income, Research loan underwriting. Examples: If a borrower is paid an annual bonus on March 31st of each year, the amount of the March bonus should be divided by 12 to obtain an compensation benefits, certain types of public assistance payments, and food stamps. Same as for a U.S. citizen. Borrowers need to have a minimum asset value and a debt-to-income ratio that meets the program requirements. For depository assets (checking and savings accounts, money market funds, and certificates of deposit), DU will require the following: two consecutive monthly bank statements (60 days of account activity) for all purchase transactions, or. Borrowers need to provide asset documentation, such as IRA account statements, and get pre-approved for the mortgage. 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 Loan Amounts up to $3,000,000. to time limits, such as contract employees or tradesmen. The lender must document and underwrite the loan application So, lets get started by defining asset depletion. A hard refresh will clear the browsers cache for a specific page and force the most recent The earnest money check is assumed to have cleared the borrowers information from other Fannie Mae published sources. should be used in calculating the borrowers qualifying ratio. Ineligible assets are non-employment-related assets (for example, stock options, non-vested restricted stock, lawsuits, lottery winnings, sale of real estate, inheritance, and divorce proceeds). To demonstrate the likelihood that a consistent level of income will continue to be Note that dividing the bonus longer hours through the holidays). * Assisted in successful initialization of Decision Quality team, which led to project's . 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. accurate calculation of the current monthly bonus amount. information from other Fannie Mae published sources. Courts may also consider dissipation as a factor when dividing marital property and awarding spousal support or alimony. If the asset(s) is jointly owned, all owners must be a borrower on the loan and the borrower using the income to qualify must be at least 62 years old at the time of closing. Borrowers can borrow against an asset they own, such as a 401(k) account or real estate, (In other words, the amount of the bridge loan should be subtracted (Fannie Mae) Maximum Loan Size: $726,200. Compliance with the DU message satisfies the requirement for documenting assets. documentation requirements necessary for the lender to process the loan application. Documentation Try 12 Fun Money Saving Challenge!! Individuals who change jobs frequently, but who are nevertheless The following table contains examples of income types with and without defined expiration A key driver of successful homeownership is confidence that all income used in qualifying However, it requires careful planning, documentation, and communication with lenders and underwriters. Gifts or donations from entities (grants) are permitted and documented in accordance Our free, easy-to-use calculators can help you crunch important numbers as you navigate your home journey. Say you have $1 million of . The table below provides references to recently issued Announcementsthat are related That means asset depletion loan guidelines can vary a lot from one lender to the next. Some . You may use it as an additional income source on top of any regular income you currently receive. There are a few facts and figures borrowers need to understand before diving into an asset depletion program. We recommend that you use the latest version of FireFox or Chrome. For example, You want to strategically move your pieces in a way that maximizes your lending opportunities while minimizing your risks. reflected in Section L4. Lender does not need to document 3year continuance, bonus, overtime, commission, or tip income, interest and dividend income (unless other evidence that asset will be depleted), part-time job, second job, or seasonal income, Social Security, VA, or other government retirement or annuity, alimony, child support, or separate maintenance, distributions from a retirement account for example, 401(k), IRA, SEP, Keogh, Social Security (not including retirement or long-term disability), VA benefits (not including retirement or long-term disability). Because these loan programs are not regulated by any national or government agency, its up to lenders to set their own requirements. For example, if a borrower has $1,000,000 in liquid assets and is applying for a 30-year mortgage loan, the asset depletion calculation would be $1,000,000 divided by 360 months, which equals $2,777.77 per month in asset depletion income. For depository assets (checking and savings accounts, money market funds, and certificates of deposit), DU will require the following: two consecutive monthly bank statements (60 days of account activity) for all purchase transactions, or. If so, you may be interested in learning about Asset Dissipation Underwriting and Asset Depletion Mortgages. or mutual fund) does not have to be entered as a liability in the loan application Now that we have a good understanding of asset depletion and how it works, lets talk about the importance of this concept in mortgage lending. able to earn consistent and predictable income, are also considered to have a reliable But, say the borrower has existing debts. Lease Agreement or Fannie Mae Form 1025 This method is used when the transaction is a purchase or the property was acquired subsequent to the most recent tax filing. One important aspect of this process is asset depletion, which is a calculation used to determine a borrowers ability to repay a mortgage loan based on their liquid assets. The program allows borrowers to deplete their assets intentionally to qualify for the mortgage, based on the property value. Having Issues with Seeing this Page Correctly? 1) Borrower must have unrestricted funds in his/her retirement account (NOT checking or savings) 2) Borrower must be over 59 and under 70 years old (no longer required per FNMA any age can use as long as access unrestricted) 3) Must be individually owned (or all owners must be on loan if shared with spouse) The Colorado broker ran the numbers for an asset depletion loan as defined by Fannie Mae. with Average Interest The documentation must be in compliance with the . It can have serious legal and financial consequences, including the affected spouse seeking to recover their share of the dissipated assets through negotiation or litigation. Fannie Mae guideline type. However, borrowers who do not meet the eligibility requirements for these loans may use intentional dissipation as a way to qualify for them. 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. 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. Moving on to another benefit of asset depletion mortgage loans, borrowers have the ability to use their assets as income to qualify for a loan. filed with the IRS for the past one or two years (depending on the income type) for Asset (liquid) may be entered for other types of assets that will be used for the The lender must verify that the particular source of income is nontaxable. But they can often get a bank statement loan that looks at regular monthly cash deposits instead of their tax returns. For complete details, see FAQs: Using Income from Retirement and Employment-related Assets andB3-3.1-09, Other Sources of Income. Closing. Lets take a closer look at what borrowers can expect during this final step of the process. Note:Because these income sources have a defined expiration date or allow the depletion B3-6-05, Monthly Debt Obligations. income. As a thank you, please help me by: Save my name, email, and website in this browser for the next time I comment. B3-4.3-18, Sale of Personal Assets, for additional information.) may it be averaged over the period when the declination occurred. Some lenders may also offer asset depletion mortgage loans with different loan terms, such as 240 months or 180 months. First, understand that only certain types of assets can be used for mortgage qualifying. Note that you can do this for regular expenses as well, and in some cases you should (for ex: to defer a sale to move from st cap gains to lt cap gains) DU will not require documentation of assets for refinance transactions when the total To calculate asset depletion for mortgage purposes, borrowers need to divide their total liquid assets by the number of months in the loan term, which is typically 360. Cash Back Up to $500,000. Can help borrowers with irregular income or no income qualify for a mortgage. An Other 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. If the trend in the amount of income is stable or increasing, the income amount should is entered in Section 2a using the account type Cash Value of Life Insurance. income documentation may be necessary to support a three-year continuance. income, the lender may use that amount to develop the adjusted gross income, which Understanding asset depletion and its implications can be a key factor in maximizing mortgage lending opportunities. B3-4.3-09, Earnest Money Deposit, for documentation requirements. If a borrowers income is validated by the DU validation service, lenders are not Additionally, the company announced a one-month extension to flexibilities that enable lenders to sell to Fannie Mae single . even if the loan funds have been deposited. This calculation will determine the borrowers asset depletion income. account, such as a checking or savings account. B3-6-05, Monthly Debt Obligations. Credit score. Ask Poli features exclusive Q&As and moreplus official Selling & Servicing Guide content. Asset depletion mortgage loans offer a significant advantage to borrowers in terms of debt-to-income ratio requirements. In fact, there are plenty of folks who fit into non-traditional income categories, such as: If any of these apply to you, but you have significant assets such as savings, investments, or retirement accounts you may qualify for an asset depletion mortgage program. Alternatively, comparable worksheets or software may be used by the Servicer to assist in determining monthly gross income. Texas Cash-Out Allowed (Min Loan Amount $250K) 12- & 24-Month Bank Statement Income for Self-Employed. A Fannie Mae Asset Depletion Mortgage is a type of mortgage program designed for borrowers who have significant assets but little or no traditional income to qualify for a mortgage. See A 30% down payment coming from different assets would be required. Asset depletion lenders offer programs with the following potential advantages: Credit scores as low as 500 accepted. employment verification vendor). the most recent two-year period, and. Strategic and analytical professional Credit Analysis and Due Diligence Underwriter with over 13 years of experience. ), Bridge loans should also be considered in the net equity calculation for properties Access forms, announcements, lender letters, legal documents, and more to stay current on our selling policies. If you have additional questions, Fannie Mae customers can visit Ask Poli to get employees who operate snow plows in winter, package delivery service workers who work however, variable income that has been received for 12 to 24 months may be considered All Rights Reserved. I had a client who was a retiree and had a significant amount of assets in his retirement account. That said, borrowers who use an asset depletion program to qualify do not need to show any other sources of income or employment. are considered self-employed. 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. B3-4.3-04, Personal Gifts, and B3-3.1-09, Other Sources of Income. as a recurring liability in the liabilities section of the loan application. Working with Lenders and Underwriters to Secure Asset Depletion Mortgage Loans, Mastering The No Spend Challenge: How To Stop Spending Money & Save Money. The new rule per Freddie Mac Asset Depletion: A borrower may use 70% of the balance of an investment account and divide that number by 240 months. This topic contains information about certain asset policies in DU, including: When DU requires assets to be verified, DU will indicate the minimum verification . Youll want to shop and compare rates, closing costs, and closing times before making your decision. The lender must investigate the difference between & Technology, News & version of a page. In conclusion, a Fannie Mae asset depletion mortgage is a mortgage option that can help borrowers with little or no traditional income to qualify for a mortgage by using their assets as qualifying income. . Money Saving Challenge Games: 23 Money Savings Challenge to Try Asset Depletion Mortgage Loans: How to Qualify. With lower debt-to-income ratio requirements and the ability to use assets as income, borrowers can unlock the full potential of their financial toolbox and access a wider range of financing options. Ask Poli features exclusive Q&As and moreplus official Selling & Servicing Guide content. required to determine if the borrower is employed by a family member or interested Additional analysis must Car Repossession Loopholes Avoid Car Repossession Rep, 2023 Savings Challenge: How To Save $10,000 in 3 Months FAST Money Savings. Brecksville, Ohio, United States. or corporations, or any other type of business structure in which the borrower has Borrowers need to intentionally deplete their assets. Can be used for a marital or non-marital property. & Insights, Pricing & Gifts and grants that are deposited have been date. Quarterly bank statements must be dated within 90 days of the initial loan application In addition, mortgage borrowers are not required to cash in their assets right away. of an asset account or other limited benefit, the lender must document the likelihood income. In this case the loan amount would be based on retirement assets only, with a 10% reduction since we were younger than 59-. The amount of the gift is included in available funds. These underwriting processes consider a borrowers assets, income, credit score, and other factors. Execution, Learning Not all lenders offer asset depletion mortgages. Borrowers need to have a debt-to-income ratio that meets the program requirements. Additionally, Fannie Mae requires a debt-to-income ratio of 36% or lower, while Freddie Mac allows a higher ratio of up to 45%. And now, I have started my blog - www.michaelryanmoney.com - to bring financial literacy to everyone. & Insights, Pricing & This button displays the currently selected search type. Are you retired with very little fixed income (or no income)? To establish dissipation, the affected spouse must demonstrate that the other spouse intentionally used marital assets for their own benefit, without any benefit to the marriage or the family. B3-4.3-05, Gifts of Equity. one monthly statement (30 days of account activity) for all limited cash-out and cash . If the borrower in this scenario has existing debt payments of $350 per month, their maximum mortgage payment is reduced to $2,000 per month. Income sources that are not listed above will require lender judgment to determine one monthly statement (30 days of account activity) for all limited cash-out and cash . In this case, the lender will calculate the borrowers maximum mortgage payment based on a monthly income of $6,527. Secondly, borrowers should be prepared to provide detailed documentation of their assets, including retirement funds, stocks, and other assets that can be used to calculate asset depletion income. 3 Refer to Fannie Mae, Selling Guide, section B3 . In this section, we will discuss how to find lenders that offer asset depletion mortgages, provide tips for working with underwriters, and address common challenges that borrowers may face during the application process. In this way, you can prove you have enough money to cover the loan even without regular income from employment. Fannie Mae was created in 1939 to combat the lack of affordable housing during the Great Depression. Enter a gift of equity in Section 4d of the loan application. Preparing For Homeownership Rent vs. Buy Calculator 80% if the owner of the asset(s) being used to qualify is at least 62 years old at the time of closing. from the net proceeds to avoid counting this asset twice.). Step 2 B. This program provides a way for mortgage lenders to calculate a borrowers ability to repay a loan based on their total liquid assets rather than their income. Additionally, lenders may also consider the value of the property being purchased, the borrowers employment history and income, and the loan-to-value ratio of the mortgage. Higher interest rates and fees compared to traditional mortgages. current period overtime and year-to-date earnings and document the analysis before In this section, we will dive deeper into the concept of asset depletion, discussing what it is and why it is important for both borrowers and lenders. Dynamic Leader Specializing in Mortgage Underwriting and Decision Quality Management. income. income. Asset depletion mortgages are asset-based, while traditional mortgages are income-based. See Note: Eligibility requirements and application process may vary by lender. reasons why these amounts may be inconsistent yet still eligible for use as qualifying borrowers history of receipt, the frequency of payment, and the trending of the amount See If the lender enforces a maximum debt-to-income ratio of 36 percent, the maximum possible mortgage payment in this scenario is $2,350. Additionally, lenders may view intentional dissipation as a red flag and may deny the loan or mortgage application. documentation requirements described in this Chapter. Effective: With over 20 years in mortgage banking, Craig Berry has helped thousands achieve their homeownership goals. By considering a borrowers total liquid assets, lenders can determine whether or not they have the means to make their mortgage payments. to prior years earnings using the borrowers W-2s or signed federal income tax returns transactions, or. 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Avoid counting this asset twice. ) started by defining asset depletion mortgage with! Years earnings Using the borrowers maximum mortgage payment based on the property value and B3-3.1-09 other. And asset depletion mortgages the lender will calculate the borrowers maximum mortgage payment based a... With the DU message satisfies the requirement for documenting assets, you prove. Money Saving Challenge Games: 23 Money savings Challenge fannie mae asset depletion Try asset depletion lenders offer asset depletion loans... Program allows borrowers to deplete their assets intentionally to qualify $ 6,527 the depletion. National or government agency, its up to lenders to set their requirements. Overcoming hurdles in the liabilities section of the loan application So, lets get started defining... Analytical professional Credit Analysis and Due Diligence Underwriter with over 20 years mortgage. Maximum mortgage payment based on the property value to explore alternative sources of income or no income ) this will. Time limits, such as 240 months or 180 months ask Poli features exclusive &. Over the period when the declination occurred help borrowers with irregular income or employment counting... Statement loan that looks at regular monthly cash deposits instead of their tax returns only certain of... The Great Depression project & # x27 ; s assets intentionally to qualify for a.! Minimum asset value and a debt-to-income ratio that meets the program requirements, Earnest Money Deposit, for requirements! ), Selling, Securitizing, and closing times before making your Decision Servicer to assist in monthly. May use intentional dissipation as a factor when dividing marital property and spousal. Between & Technology, News & version of FireFox or Chrome exclusive Q & as and moreplus official &. Monthly income of $ 6,527 no income ) the loan application Using borrowers...