JVM Lending Blog

Asset Depletion Loan, or Income Based on Assets Loan

30 Year Fixed Rate Loan at a Cost of One Point: 3.375%* (APR=3.59%)

Rates improved today primarily because of sequester inspired government spending cuts. The bond markets perceive this reduction in government spending as potentially slowing down the economy. As we have mentioned many times, signs of a weaker economy tend to reduce rates.

We have an “asset depletion” loan that “imputes” a person’s monthly income based on the total amount of liquid assets that will remain in his portfolio after his home purchase. The assets must be “liquid” (stocks, bonds, cash, etc.) and they cannot include real estate.

To figure out income, we amortize the assets over 30 years (or until borrower turns 85) at a rate of 5%. For example, if a 70 year borrower comes to us with $1.5 million in various stock funds and he intends to use $500,000 for a down payment, we can amortize the remaining $1 million over 15 years (difference between age 85 and current age of 70) to figure out his income.

$1,000,000 amortized over 15 years at 5% yields about $5,350 per month in income. We are also allowed to add in “actual” income reported on tax returns such as social security and pension income. Hence, if the borrower has $3,000 of social security and pension income, his total income for purposes of this asset depletion loan will be about $8,350 per month.

This is enough income to qualify for a $1 million purchase and a $500,000 loan for example. Many borrowers with limited income and substantial liquid assets are unaware that they qualify for financing.

*The above rate quote has the following assumptions: $500,000 purchase; $400,000 loan amount; 20% down payment; credit score above 740; property is SFR; borrower has sufficient income to qualify; Estimated closing costs affecting the APR include $4,000 for Origination Fee; $995 for Lender Fees; $2,300 for Title Insurance (CLTA and ALTA), $800 for Escrow Fee; and $1,000 for Prepaid Interest.

Call Jay Voorhees or Heejin Kim at (925) 855-4491

Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646