Rates climbed again today, and the reason is interesting. I explain more with my rate quote below.
I blogged a few weeks ago about the expansion of DSCR loans, which allow investors to qualify with rental income only: Hoovering Up Sunbelt Rental Properties With DSCR Loans.
DSCR loans have become significantly more flexible and prevalent due to the substantial expansion of the overall “Non-QM loan” market over the past few years.
Non-QM loans are, once again, loans that employ non-traditional income verification methods and fall outside of the very strict Dodd-Frank regulations.
Non-QM loans include: (1) DSCR Loans; (2) Bank Statement Loans – using bank deposits for income; (3) Buy Now, Sell Later Loans; and (4) Asset Depletion Loans.
Non-QM loans have opened up a huge segment of business for savvy lenders, as there is a large swath of highly qualified borrowers who cannot qualify for traditional financing.
Anyway – the expansion in Non-QM loans has really opened up the Asset Depletion channel, and we’re taking advantage of it more than ever – given how often borrowers hold significant assets nowadays.
Asset Depletion Loans (Using Liquid Assets to Qualify for a Mortgage)
- Asset depletion loans are loans that allow borrowers to take all of their liquid assets (stocks, bonds, cash) and divide the total by a specific number of months to come up with an income figure.Our best investors (who buy loans from us) allow us to only divide by 60 months. So, a borrower with $2 million in liquid assets would have $33,333 per month in income (which is officially “a lot” – even in CA).Other investors divide by 84 months and 120 months, yielding lower income numbers.
- Asset depletion loans allow retirement funds (IRAs and 401 (k)s). But those funds are typically discounted to 50% to 60% of the market value, depending on investor.
- Borrowers don’t actually need to “deplete” assets. I bring this up because we sometimes use actual IRA or retirement account distributions to help borrowers qualify for loans – and in those cases we need to prove the borrowers will actually get distributions. But with asset depletion loans, there is no such requirement.
- Borrowers can “stack” asset depletion income on top of other income. A limited number of investors allow us to “stack” asset depletion income on top of DSCR, bank statement, and/or tax return income.
- Do not need to be “old” (aka retired). There are no age requirements for most asset depletion loans.
- Freddie Mac has a conventional asset depletion loan, but borrowers do need to be “old.” And the qualifications are stricter. Furthermore, the more competitive non-QM options offer rates that are similar to or better than those of Freddie Mac in some cases.
TLDR: There are a hell of a lot of borrowers out there who have more than enough assets to qualify for excellent financing – even if their tax returns don’t show enough income to qualify the old-fashioned way.
