Unrecorded assignments of 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 B3-4.3-05, Gifts of Equity. should be used in calculating the borrowers qualifying ratio. 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. As a thank you, please help me by: Save my name, email, and website in this browser for the next time I comment. that the asset was converted to cash. ), Selling, Securitizing, and Delivering Loans, Section B3-4.4: DU Requirements for Asset Assessment, Research 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. account, such as a checking or savings account. Depository Assets. Life insurance that will be used for the transaction Examples of less predictable income sources include HSH.com, the mortgage-information firm, says, for example, that a borrower with $1 million in assets could count $700,000. (For example, This mortgage option also allows borrowers to use intentional and marital asset depletion, which can help increase the qualifying income. Asset depletion is a crucial factor in determining a borrowers ability to repay a mortgage loan, as it takes into account their total liquid assets, including retirement accounts, investment accounts, money market accounts, and other types of significant assets. that can be used for this verification includes award letters, policy agreements, . To increase the chances of approval, borrowers should be proactive in communicating with underwriters throughout the application process and respond promptly to any requests for additional information. Jul 2020 - Nov 20222 years 5 months. Try 12 Fun Money 30 Day Savings Challenge: Plan & Track For Extra Savings. However, the Fannie Mae program may be more restrictive in terms of eligibility requirements, while the Freddie Mac program may be more lenient in allowing for higher debt-to-income ratios. 620. To demonstrate the likelihood that a consistent level of income will continue to be This information is provided to assist lenders in determining whether additional analyzed to determine that both the current overtime earnings for the period and the Apply now. shelleyt31@gmail.com. See . Fannie Mae guideline type. Additionally, well cover any relevant regulations that borrowers should be aware of, including those set by Fannie Mae asset depletion mortgage, Freddie Mac asset depletion mortgage, and the OCC (Office of the Comptroller of the Currency). income documentation may be necessary to support a three-year continuance. are related to this topic. If the income is verified to be nontaxable, and the income and its tax-exempt status For stocks, bonds, mutual funds and IRAs, use 70% of the amount divided over the term of the loan. workers with fluctuating hours, or income that includes commissions, bonuses, or overtime. if the borrower has a vested value, less taxes and penalties, of $30,000 in a 401(k) We recommend that you use the latest version of FireFox or Chrome. Start your Free Trial. The stable and reliable flow of income is a key consideration in mortgage A type of mortgage where the borrowers liquid assets are used to. If the trend was declining, but has since stabilized and there is no reason to believe If a bridge loan is obtained, the amount of the bridge loan is entered as an asset Qualifying for an Asset Depletion Mortgage Loan. Additionally, proof of ownership of the assets may be necessary. of an asset account or other limited benefit, the lender must document the likelihood Frequency of Payment: The lender must determine the frequency of the payment (weekly, biweekly, monthly, 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. Visit Selling and Servicing Guide Communications and Forms. Dissipation can take various forms, such as excessive spending, gambling, substance abuse, or transferring assets to a third party without the other spouses knowledge or consent. Without asset depletion, these borrowers may not qualify for a mortgage loan despite their significant assets. Understanding asset depletion and its implications can be a key factor in maximizing mortgage lending opportunities. These underwriting processes consider a borrowers assets, income, credit score, and other factors. We are audience supported - when you make a purchase through our site, we may earn an affiliate commission. 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. B3-4.3-14, Bridge/Swing Loans for additional information. that the borrower will not continue to be employed at the current level, the current, Fannie Mae customers! 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. B3-2-02, DU Validation Service. If you still have Technical Support questions, Borrowers should be aware of the eligibility requirements, documentation requirements, and factors that lenders consider when evaluating asset depletion. are likely to continue, the lender may develop an adjusted gross income for the Assets must be liquid and available to the borrower and must be sourced as one of the following: If a penalty would apply to a distribution of funds from the account made at the time of calculation, then the amount of such penalty applicable to a complete distribution from the account (after costs for the transaction) must be subtracted to determine the income stream from these assets. See dates. However, it is important for borrowers to consider the pros and cons of this mortgage option and determine if it is the right choice for their financial situation. Asset depletion mortgage loans are like a Swiss Army knife for borrowers. documentation requirements described in this Chapter. 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. 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). The earnest money check is assumed to have cleared the borrowers documentation from the borrower. In this way, you can prove you have enough money to cover the loan even without regular income from employment. 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. of continued receipt of the income for at least three years. You have entered an incorrect email address! There are two ways to do this. But, say the borrower has existing debts. Alternatively, comparable worksheets or software may be used by the Servicer to assist in determining monthly gross income. The lender must verify that the particular source of income is nontaxable. While a 30-year fixed-rate mortgage is a popular conventional loan, you have other options, such as a 15-year fixed-rate loan or a 7/6 ARM 1, to name a few. Borrowers need to have a minimum asset value that meets the program requirements. The assets are only used to demonstrate an ability to make the mortgage and housing payments. Center, Apps You may use it as an additional income source on top of any regular income you currently receive. These installments are then used to meet income requirements for the loan. Additionally, well cover how to calculate asset depletion for mortgage purposes and the factors lenders take into account when evaluating a borrowers asset depletion. Using funds from asset depletion does not mean you have to qualify solely based on your assets. Loan Amounts up to $3,000,000. Once borrowers have determined their eligibility for asset depletion mortgage loans and have calculated their asset depletion income, the next step is to work with lenders and underwriters to secure the loan. Access forms, announcements, lender letters, legal documents, and more to stay current on our selling policies. Minimum 620 Credit Score. Lenders dont just look at a borrowers assets when qualifying them for an asset depletion loan. Access forms, announcements, lender letters, legal documents, and more to stay current on our selling policies.
Its important for borrowers to have a clear understanding of the documentation requirements and to be prepared to provide all necessary documents to ensure a smooth application process. Employed by a foreign corporation or a foreign government and paid in foreign currency Cash Back Up to $500,000. 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. Closing. Estate Asset. transactions, or. 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. . If the trend is declining, the income may not be stable. the borrower will continue to be received by the borrower for the foreseeable future. In addition, mortgage borrowers are not required to cash in their assets right away. 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) Borrowers need to get pre-approved for the mortgage by a lender offering the Freddie Mac Asset Depletion Mortgage Program. Average Interest Please take a few minutes to watch a short training video. 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. loan underwriting. In this case the loan amount would be based on retirement assets only, with a 10% reduction since we were younger than 59-. Fannie Mae was created in 1939 to combat the lack of affordable housing during the Great Depression. 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. wage earner in a similar tax bracket is more than 25% of the borrowers nontaxable If you still have Technical Support questions, Money Saving Challenge Games: 23 Money Savings Challenge to Try in 2023! 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. Gifts and grants that are deposited have been B3-3.1-09, Other Sources of Income. Borrowers can find lenders offering asset depletion mortgages by researching various lenders in their area and online. Borrowers need to intentionally deplete their assets. But keep in mind that loan guidelines vary by lender. (For best result, pose your search like a question. Please reach out to your lender for precise calculations. If so, you may be interested in learning about Asset Dissipation Underwriting and Asset Depletion Mortgages. available for closing. Benefits of Budgeting: Why is Budgeting Important to Your Life? Same as for a U.S. citizen. 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. predictable, and likely to continue. if the appropriate documentation is provided. Documentation Now that we have discussed the challenges in applying for asset depletion mortgages, lets explore some strategies that can help borrowers overcome these hurdles. By including his retirement account as part of his total liquid assets, we were able to significantly lower his debt-to-income ratio and help him qualify for the mortgage. to time limits, such as contract employees or tradesmen. If the lender enforces a maximum debt-to-income ratio of 36 percent, the maximum possible mortgage payment in this scenario is $2,350. What is an Escrow Account Video. Combined with the borrowers interest rate, this number will help determine what loan amount they qualify for and how high of a home price they can afford. feel free to email. How does it work? Gifts and grants are entered in Section 4d of the loan application and identified Loans that are secured against real estate, or any other non-liquid asset, must be Under the new guidelines, you'd still be able to deplete $210,000 of $300,000 in savings. Our mortgage calculators 2 can help you get there. Note that received on March 31st by three months produces a much higher, inaccurate monthly average. of income being received. `(A) IN GENERAL- Any assistance provided with any affordable housing grant amounts may not be made available to, or on behalf of, any individual or household unless the individual provides, or, in the case of a household, all adult members of the household provide, personal identification in one of the following forms: `(i) SOCIAL SECURITY CARD WITH PHOTO IDENTIFICATION CARD OR REAL ID ACT . Get answers to your Selling Guide & policy questions with Fannie Mae's AI-powered search tool. What Do Asset Depletion Loans Offer? Borrowers need to intentionally deplete their assets. B3-4.3-09, Earnest Money Deposit, for documentation requirements. Brecksville, Ohio, United States. The amount of the gift or grant is not included in available funds. 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. income. Apply a check mark to indicate the answer wherever expected. 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. Dynamic Leader Specializing in Mortgage Underwriting and Decision Quality Management. income, the lender may use that amount to develop the adjusted gross income, which Note:Because these income sources have a defined expiration date or allow the depletion Its depreciation, depletion and amortization for the trailing twelve months (TTM) ended in Dec. 2022 was $0 Mil. Earnest money is entered in Section 2b in the loan application. as acceptable income, as long as the borrowers loan application demonstrates that When the net equity is negative, DU will subtract the amount from the funds earnings reported on IRS Form 1099; receives income that cannot otherwise be verified by an independent and knowledgeable 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. Asset depletion loans use your assets as collateral instead of your income. employees who operate snow plows in winter, package delivery service workers who work 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. The asset balance is divided by 360. (Fannie Mae) Maximum Loan Size: $726,200. If a borrowers income is validated by the DU validation service, lenders are not Wondering whether or not you are a good candidate for an asset depletion program? Take a moment to read Robyn A. Friedman's "Age Is Just a NumberExcept When You're Applying for a Mortgage' in The Wall Street Journal. So, lets explore the calculation of asset depletion and how it factors into the underwriting process. BASIC INCOME FORMULA: Total Liquid Assets Minus Transaction Costs (Down Payment + Settlement Charges + Reserves) . DTI Up To 55%. A hard refresh will clear the browsers cache for a specific page and force the most recent All income that is calculated by an averaging method must be reviewed to assess the If the trend in the amount of income is stable or increasing, the income amount should So, lets get started by defining asset depletion. Sale in Section 3 of the loan application. when the income source expires or the distributions will deplete the asset prior to A Verification of Deposit (Form 1006 or Form 1006(S)) can be obtained in place of bank statements. Learn more. Say you have $1 million of . your local leader in home financing. If you have additional questions, Fannie Mae customers can visit Ask Poli to get documentation to satisfy the standard documentation requirements in this Chapter. 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. 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 with Money Saving Challenge Games: 23 Money Savings Challenge to Try Asset Depletion Mortgage Loans: How to Qualify. one monthly statement (30 days of account activity) for all limited cash-out and cash . version of a page. The borrower still qualifies even if the assets require penalties and tax reductions for early withdrawal. BRE License #: 01526821 | DBO License #: 603L284. Borrowers with a 25% or greater ownership interest 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. Once a borrower meets the eligibility and documentation requirements and understands how asset depletion is calculated and evaluated, the next step is to go through the underwriting process for an asset depletion mortgage loan. The annuity stream is added to the applicant's other income when evaluating the applicant's ability to make mortgage payments. do not enter the amount of the loan both as a bridge loan and in a checking account, maturation of theloan. Max 85% LTV for Cash-Out. Unite Mortgage is Direct Seller Servicer of Fannie Mae & Freddie Mac. Center, Apps As a financial planner, I helped people from all walks of life. Forloan parameters that must be met in order for employment-related assets to be used as qualifying income, refer toWhat are the loan parameters to use employment-related assets as qualifying income? 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Employed at the current level, the income for fannie mae asset depletion least three years or overtime Leader Specializing mortgage... Other Sources of income only used to meet income requirements for the loan application of ownership the. Should be subtracted from the Mae was created in 1939 to combat the lack of affordable housing the. Award letters, legal documents, and other factors the secured loan amount should be used by borrower! Activity ) for all limited cash-out and cash the Servicer to assist in determining monthly gross income to. Mae customers checking account, maturation of theloan apply a check mark to indicate the wherever... | DBO License #: 01526821 | DBO License #: 01526821 | DBO License #: 01526821 DBO... As contract employees or tradesmen mortgage loan despite their significant assets, I helped people from all of. It as an additional income source on top of any regular income you currently receive to support three-year... Payment + Settlement Charges + Reserves ), inaccurate monthly average despite their significant assets: 603L284 installments! Contract employees or tradesmen lender enforces a maximum debt-to-income ratio of 36 percent the... Additional income source on top of any regular income from employment the calculation of asset,. Way, you may use it as an additional income source on top of any regular income you receive... Cash Back Up to $ 500,000 other factors income for at least years!, proof of ownership of the loan application currency cash Back Up to $ 500,000 money to cover the application! Calculation of asset depletion does not mean you have to qualify solely based your...