At LendSure, we know that not all mortgage borrowers fit into the conventional lending box. That’s why we offer Asset Depletion Mortgages, a type of loan that uses a borrower’s financial assets for underwriting.
We’ll acknowledge that the name of this product sounds a bit ominous – depletion doesn’t sound like a good thing. But the concept is a healthy one: By using an Asset Depletion Loan, a borrower can achieve their financial goals and hopefully build assets for the long run. We’d prefer a more welcoming name, but the Asset Depletion language has become an industry standard.
What Is an Asset Depletion Mortgage?
Conventional mortgages are underwritten based on income, typically W-2 wages. But what if a borrower doesn’t have steady income but does have significant holdings of cash and stocks? Most lenders consider the borrower unworthy of credit. It’s an obvious flaw in the mortgage market — potential borrowers with seven-figure portfolios are considered too risky to qualify for a mortgage, even though common sense would dictate that they’re exactly the sort of client lenders want. Asset Depletion Mortgages provide a valuable workaround.
An asset depletion mortgage, sometimes known as an asset-based home loan, is a type of mortgage loan that qualifies a borrower by substituting assets for income. In contrast to other flavors of asset-based lending, asset-based home loans don’t use the borrower’s assets as collateral. Instead, the lender goes through a qualifying exercise that considers assets as income, then analyzes whether the borrower has sufficient wherewithal to repay the loan.
If your client applies for an asset depletion mortgage, the borrower won’t have to provide proof of employment income. So there’s no need to collect pay stubs, W-2s, 1099s, tax returns or other standard documentation required for conventional loans.
Instead, Asset Depletion Loans look at the borrower’s assets – cash and cash equivalents, securities, and even holdings in retirement accounts. You’re probably seeing the power of these types of home loans – they’re perfect for borrowers who don’t have predictable income but do have plenty of wealth. (The qualifying assets must be liquid, so real estate, artwork, and other types of property don’t count.)
How does it work?
An asset depletion loan lets you pay your mortgage through an exercise known as asset depletion. Check out the following loan scenario: Let’s say your client has $525,000 in cash, $250,000 in stocks and bonds and $450,000 in retirement savings. Under LendSure’s formula, we’d count 100% of the cash (so $525,000), 80% of the taxable stocks and bonds ($200,000 in this example) and 70% of the retirement savings balance ($315,000). So the borrower has $1,040,000 in eligible assets.
Unlike the industry standard asset depletion method, which divides assets over 120 months, LendSure’s unique Asset Qualifier program uses a 60-month draw period, effectively doubling the qualifying income. In this example, we divide $1,040,000 in qualifying assets by 60 months, resulting in a qualifying income of $17,333.
Once a borrower has qualified and closed on the mortgage, there may not be a need to liquidate assets to make monthly payments,provided they can cover payments through existing cash flow. In this case, the asset calculation serves as an alternative method for demonstrating creditworthiness, rather than a commitment to use those assets for repayment.
A tailored product for unique situations
There are many scenarios where Asset Depletion Loans can be a smart choice. Say your client is retired with ample assets, or is taking a break from work after selling a business for a tidy windfall. Asset Depletion Loans also can make sense for homeowners living on inheritances, or for borrowers who have amassed large portfolios of stock or cryptocurrencies. These borrowers would rather not sell investment holdings to buy a house, and even though they don’t qualify for a conventional mortgage, they’re more than able to repay a home loan.
The bottom line is that LendSure’s Asset Depletion Loans are just one more way that we respond to the needs of the market. While mainstream mortgage underwriting is hyperfocused on monthly incomes of borrowers with full-time jobs, we realize that there’s a large market of potential borrowers with unique situations.
The LendSure Way
It’s simple. We make loans that make sense. We’re not in-the-box lenders. Of course, there are numbers and ratios and data to consider, but we know that behind every file, there’s an individual with unique circumstances seeking a loan. We work hard to offer our common-sense take on lending to borrowers seeking funding for the home of their dreams, another addition to their investment property portfolio or refinancing of a currently-owned property.
Are you ready to grow your business? Conforming loan approval guidelines can be restrictive, but we want to offer our mortgage broker partners the education, the tools, support and the guidance they need in order to say “yes” to more of their clients. This ensures happy borrowers and opportunities for bottom line growth. What are you waiting for? Let’s get started!
