I touched on Asset Loans in December but I wanted to elaborate on them b/c they are such a great alternative for borrowers with substantial assets but limited documentable income.
There are three basic types of Non-QM Asset Loans that we offer.
- Asset Depletion Loan: We simply divide total liquid assets by 120 months and that is the income we use for qualifying.
- Qualified assets include stocks, bonds and cash, and 60% to 70% of retirement assets (depending on type of asset in account).
- Down payment needs to be at least 20%.
- Qualified Assets cannot include funds necessary for a down payment and closing costs.
- “Stacking” asset based income on top of other income like social security is allowed.
Example: If a borrower has $1 million in qualified assets and no other income, her income for qualification purposes would be $1 million divided by 120 months, or $8,333 per month (enough to qualify for a $500,000 purchase).
- Total Asset or Asset Coverage Loan: “Qualified Assets” must be enough to cover the down payment, closing costs, required reserves, the entire new loan amount, and five years or 60 months of total monthly debt obligations. No income is required.
60 x Total Debt Obligations of $4,000 per month: $240,000* Down Payment: $100,000 Loan Amount: $400,000 Closing Costs: $10,000 Required Reserves: $10,000 TOTAL ASSETS REQUIRED: $760,000
*Assumes a $3,300 housing payment and $700 of consumer debt.
The interest rates for Non-QM Asset Based Loans are about 2% higher than the rates we are currently quoting for our standard conforming and jumbo loans.
These 6%+ rates are far lower than the “hard money” alternatives that used to be the only option for borrowers with limited documentable income.
- Freddie Mac Asset Depletion Loan: We divide qualified assets (similar to above) by 360 months to come up with qualifying income. This loan is much harder to qualify for but the benefit is much lower “conforming” interest rates.
- Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167