This blog post will explain what these loans are and how they work, as well as the benefits and drawbacks to take into consideration before applying for one.
What is an Asset Depletion Loan?
An asset depletion loan allows borrowers to use their total assets, rather than income, to qualify for a mortgage. These loans consider the applicant’s total assets, divide the balance by 360 – the number of months in a standard 30-year mortgage – and consider that number as the applicant’s monthly income. The lender will then calculate the maximum mortgage payment the borrower qualifies for based on that income level. Asset depletion mortgages allow borrowers to use their accumulated assets to buy a property without tying up all of that money in the property.
Who, in Los Angeles, Should Consider an Asset Depletion Mortgage?
Asset depletion mortgages are a good option for borrowers with substantial assets but not much income. This could include those who are retired, close to retirement or have significant trust assets. While asset depletion loans may appeal to self-employed workers whose business deductions make their income appear lower than it really is on their tax returns, bank statement loans may be a better option for those borrowers.
How Can Borrowers in Los Angeles Qualify for an Asset Depletion Loan?
Not all assets count towards qualification for an asset depletion mortgage. The accounts that generally qualify include checking and savings accounts, money market accounts, Certificates of Deposit, investment accounts and retirement accounts. Depending on how close the borrower is to retirement age, the lender may count all, some or none of the balance of their retirement accounts. Because the loan application process treats the asset total as income level, not the maximum mortgage payment, the assets being considered need to be enough to cover the mortgage and other living expenses over the mortgage period.
What Are the Downsides of an Asset Depletion Loan?
Asset depletion loans often require 25-30% down payments and around 700 as a minimum credit score. This is significantly higher than the required minimums for most other types of mortgages, so a traditional mortgage could be a better option for borrowers who have income in addition to their assets. Not all lenders and loan programs allow asset depletion as an income source, so lender choices may be more limited .
What Are the Current Rates for Asset Depletion Mortgages?
For some borrowers, asset depletion mortgages are an excellent option. Consulting with the lending professionals at Advanced Funding Solutions can help determine if this is the right type of mortgage for you. Contact Advanced Funding Solutions, Inc for a personalized quote.