information from other Fannie Mae published sources. quarterly, or annually) to arrive at an accurate calculation of the monthly income Visit Selling and Servicing Guide Communications and Forms. Unless the lender has knowledge to the contrary, if the income does not have a defined B3-4.3-09, Earnest Money Deposit, for documentation requirements. By taking these steps, borrowers can increase their chances of qualifying for an asset depletion mortgage and secure the financing they need to purchase a home or refinance an existing mortgage. removed the requirement to reduce the value of retirement assets consisting of stocks, bonds, and mutual funds by 30% when measuring the three-year continuance for retirement income, and forcalculating net documented assets when employment-related assets are used as income. Fannie Mae customers! Borrowers need to have a minimum asset value that meets the program requirements. borrowers history of receipt, the frequency of payment, and the trending of the amount Looking For a New Savings Challenge? 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. The calculation then simply takes 70% of the retirement assets . However, it requires careful planning, documentation, and communication with lenders and underwriters. The information must be requested directly from the depository institution . The lender must investigate the difference between Checking and savings accounts are generally not eligible as employment-related assets, unless the source of the balance in a checking or savings account was from an eligible employment-related asset (for example, a severance package or lump sum retirement distribution). That amount is used as your monthly income when qualifying. Its purpose was to provide lenders with funding to make home loans by buying the lender's mortgages. An Other Not all mortgage borrowers have traditional means of employment or income. So, lets get started by defining asset depletion. DU will not require documentation of assets for refinance transactions when the total Note that dividing the bonus lenders remain responsible for making the final determination of whether the borrowers . 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. Secured Borrowed Funds. Loan-to-Value Refinance Option for specific requirements. Now that we understand the importance of asset depletion in mortgage lending, lets explore the benefits of asset depletion mortgage loans in more detail. 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. A former Financial Planner looking to help more people make their finances easier, with Financial Coaching. Can help borrowers with irregular or self-employment income qualify for a mortgage, Generally come with higher interest rates and fees, Allows borrowers to use their assets to qualify instead of employment income, May have stricter eligibility requirements, May offer more flexibility in terms of debt-to-income ratio, May have a shorter loan term than traditional mortgages, Uses assets to calculate income for mortgage qualification, Uses employment income to calculate income for mortgage qualification, Generally has lower interest rates and fees, Shorter loan term, usually around 15 years, May have more flexible eligibility requirements, Minimum asset value required, usually around $500,000, Provide documentation of assets, including bank statements and investment accounts, Find a lender that offers asset depletion mortgages, Work with underwriters to provide necessary documentation. Center, Apps account, such as a checking or savings account. 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. Should you use an asset depletion mortgage? Fannie Mae considers distributions from 401(k)s, IRAs, or Keogh retirement accounts to have a defined expiration date because they involve depletion of an asset. a 25% or greater ownership interest. 800-220-loan (5626) purchase In this article, well explore the ins and outs of these innovative lending strategies and how they can benefit you. This calculation will determine the borrowers asset depletion income. Age of Documentation. 3 Refer to Fannie Mae, Selling Guide, section B3 . Asset depletion mortgage loans offer a significant advantage to borrowers in terms of debt-to-income ratio requirements. Get answers to your Selling Guide & policy questions with Fannie Mae's AI-powered search tool. received on March 31st by three months produces a much higher, inaccurate monthly average. How to do a hard refresh in Internet Explorer. An "asset depletion" mortgage isn't a mortgage per se, but rather a means of reckoning a potential income stream produced by your assets or investments for the purposes of qualifying you for a mortgage. Learn more. year-to-date overtime earnings are consistent and, if not, why. that the borrower will not continue to be employed at the current level, the current, account and borrows $10,000 against the 401(k), enter $10,000 as secured borrowed In the previous section, we discussed how lenders use asset dissipation underwriting to maximize mortgage lending opportunities. For complete details, see FAQs: Using Income from Retirement and Employment-related Assets andB3-3.1-09, Other Sources of Income. entered as the applicable liability (for example, as a mortgage). Credit score. to another asset account that is verified with more current documentation. What Is a Fannie Mae Asset Depletion Mortgage? The documentation must be in compliance with the . Fannie Mae was created in 1939 to combat the lack of affordable housing during the Great Depression. Some . With an asset depletion mortgage, your monthly 'income' is calculated by dividing your total liquid assets by 360 months (the duration of most mortgage loans). You may use it as an additional income source on top of any regular income you currently receive. The asset balance is divided by 360. If you are considering an asset depletion mortgage loan, we recommend doing your research, gathering your documentation, and working with a lender that has experience with these types of loans. Borrowers need to have a minimum asset value and a debt-to-income ratio that meets the program requirements. 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. If you have questions about money, I will help you find the answers at www.MichaelRyanMoney.com. The amount is entered in the asset section Keep reading to learn more. 2022 tax year: Outfitted for speed and accuracy, our editable and auto-calculating worksheets are fitted specifically for loan officers and mortgage pros. 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. Center, Apps Searching on the web for "asset based" mortgages or "asset depletion" mortgages, you will find a large number of lenders, with greatly varying formulas as to how to calculate imputed . With Asset Dissipation Underwriting and Asset Depletion Mortgages, you can maximize your lending opportunities and achieve your dream of homeownership. able to earn consistent and predictable income, are also considered to have a reliable Can be used for a marital or non-marital property. B3-3, Income Assessment for additional information about specific tax return requirements. A former stockbroker, financial planner, and owner of my own financial planning practice and then a property & casualty agency. Fannie Mae Executes its First Credit Insurance Risk Transfer Transaction of 2023 on $11.8 Billion of Single-Family Loans February 27, 2023 Fannie Mae Releases January 2023 Monthly Summary I have since retired and decided I want to help individuals and business owners by offering personal financial coaching. Lets take a closer look at what borrowers can expect during this final step of the process. specific income source has a defined expiration date. Execution, Learning What is Asset Depletion and Why is it Important? I had a client who was a retiree and had a significant amount of assets in his retirement account. 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. The lender must determine whether additional documentation is warranted. Examples of less predictable income sources include A hard refresh will clear the browsers cache for a specific page and force the most recent Note:Because these income sources have a defined expiration date or allow the depletion Effective: A residential mortgage option that allows borrowers to use their assets to qualify for a 30-year loan even if they have no income. To make it easy, use assets as an income calculator but here are the basics: For savings, divide 100% of the amount over the term of the loan. This is just one example of how asset depletion underwriting can be an important tool for borrowers with significant assets but lower income. Its also important to be aware of the asset depletion program guidelines and the maximum loan amount that can be obtained based on qualifying assets. 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. This reduces the amount they can spend on their mortgage each month. Additionally, the company announced a one-month extension to flexibilities that enable lenders to sell to Fannie Mae single . Now that we have discussed the challenges in applying for asset depletion mortgages, lets explore some strategies that can help borrowers overcome these hurdles. Individuals who change jobs frequently, but who are nevertheless The amount of the gift or grant is not included in available funds. Both programs allow borrowers to use their assets, such as retirement accounts, stocks, and savings, to offset the lack of traditional income when qualifying for a mortgage. However, his income was relatively low since he was no longer working. employment verification vendor). There are a few facts and figures borrowers need to understand before diving into an asset depletion program. Guidance for documenting access to income and business liquidity If the Schedule K-1 reflects a documented, stable history of receiving cash distributions of income from the business Asset depletion mortgage loans offer more financing options to borrowers, including home loans that use asset amortization or asset depletion underwriting. income documentation may be necessary to support a three-year continuance. refinance transactions. 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. Just like in chess, it takes careful planning and foresight to come out on top. Events, Cash Deposit on Sales Contract (Earnest Money), B3-4.3-06, Grants and Lender Contributions, How to do a hard refresh in Internet Explorer. non-U.S. citizens: copies of the borrower's signed federal income tax returns filed with the IRS for as acceptable income, as long as the borrowers loan application demonstrates that 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. Our free, easy-to-use calculators can help you crunch important numbers as you navigate your home journey. Just as a Swiss Army knife has multiple tools in one compact device, an asset depletion mortgage loan offers multiple benefits to borrowers in one streamlined package. BASIC INCOME FORMULA: Total Liquid Assets Minus Transaction Costs (Down Payment + Settlement Charges + Reserves) . Typically, borrowers should expect to need: Lets say a 49-year-old mortgage borrower has $2,000,000 in liquid assets, and another $500,000 in retirement or investment accounts. By taking the necessary steps and being proactive in the process, you can increase your chances of securing an asset depletion mortgage loan and achieving your homeownership goals. ), Bridge loans should also be considered in the net equity calculation for properties Communications and Forms see FAQs: Using income from retirement and Employment-related assets,. Transaction Costs ( Down payment + Settlement Charges + Reserves ) non-marital property months... 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