Asset Depletion Loan Programs

What Are Asset Depletion Loans?

Asset depletion loans, also known as asset-based mortgages, allow borrowers to qualify for a mortgage based on their verifiable liquid assets. Instead of relying on traditional income documentation, lenders use the borrower's assets—such as savings accounts, investment accounts, and retirement funds—as a basis for loan qualification. This type of loan is particularly beneficial for retirees, self-employed individuals, and others who may not have consistent monthly income but possess significant liquid assets.

How Do Asset Depletion Loans Work?

The qualification process for an asset depletion loan involves a detailed review of the borrower’s liquid assets. Lenders typically require a specific amount of these assets to be available after accounting for the down payment, closing costs, and reserves. The total qualifying assets are then divided by a predetermined number of months (often 60) to calculate an equivalent monthly income. This monthly income figure is used to determine the borrower’s ability to repay the loan.

For example, if a borrower has $1,200,000 in qualifying assets, and the lender uses a 60-month depletion period, the monthly qualifying income would be calculated as $20,000 ($1,200,000 ÷ 60). This income figure is then used to assess the borrower’s debt-to-income ratio and overall loan eligibility.

Key Features and Benefits

1. Flexible Income Verification: Asset depletion loans provide a flexible alternative for borrowers with substantial assets but inconsistent or no regular income. This flexibility is ideal for retirees, investors, and self-employed individuals who may not fit the mold of traditional income verification.

2. No Tax Returns Required: Unlike traditional mortgages, asset depletion loans do not require tax returns or employment verification. This makes it easier for borrowers who might have significant tax deductions that reduce their taxable income, but who still possess substantial assets..

3. Higher Loan Amounts: Because the qualification is based on substantial assets, these loans often allow for higher loan amounts, accommodating the needs of high-net-worth individuals looking to purchase luxury properties.

4. Competitive Interest Rates: Asset depletion loans offer flexible terms, including options for fixed or adjustable rates, varied loan durations, and interest-only payment periods, allowing borrowers to tailor the loan to their financial situation and goals.

Potential Drawbacks

1. Stricter Asset Verification: While these loans offer flexibility in income verification, they require meticulous documentation and verification of assets. Borrowers must ensure that their assets are liquid and easily verifiable by the lender.

2. Higher Down Payments: Asset depletion loans may necessitate higher down payments compared to traditional loans, which could limit accessibility for some borrowers.

3. Limited Availability: Not all lenders offer asset depletion loan programs, so borrowers may need to seek out specialized lenders or mortgage brokers experienced in non-QM lending.